Geopolitical tensions between the USA and China | 12 August 2022

#SP500:

China is halting cooperation with the United States in a number of areas, including dialogue between senior-level military commanders and climate talks, in retaliation for House Speaker Nancy Pelosi's visit to Taiwan, it said. China's foreign ministry also said that it was also suspending cooperation with Washington on prevention of cross-border crime and drug trafficking, and on repatriating illegal migrants, among eight specific measures. Geopolitical tension between the US and China will have a negative impact on the US stock market. The sustained labor market strength could give the Federal Reserve the latitude to keep aggressively hiking interest rates. This factor will put additional pressure on the stock market.

Trading recommendation: sell 4175 and take profit 3910.

XAUUSD:

The odds of a US recession in the next year are now roughly one-in-three after consumer sentiment hit a record low and interest rates surged, according to the latest forecasts. The probability model, which incorporates a variety of factors ranging from housing permits and consumer survey data to the gap between 10-year and 3-month Treasury yields, is now flashing a 38% probability of a recession over the next 12 months. That’s up from around 0% just a few months before. The rapid run-up in borrowing costs, paired with tightening financial conditions and decades-high inflation, has heightened concerns that the Fed—in its attempt to cool the economy and therefore inflation—will ultimately tip the US economy into recession.

Trading recommendation: buy 1753 and take profit 1790.

#WTI:

Global oil prices dropped on Thursday to their lowest levels since before Russia's February invasion of Ukraine, as traders fretted over the possibility of an economic recession later this year that could torpedo energy demand. The fall in oil prices could come as a relief to large consumer nations including the United States and countries in Europe, which have been urging producers to ramp up output to offset tight supplies and combat raging inflation. The demand outlook remains clouded by increasing worries about an economic slump in the United States and Europe, debt distress in emerging market economies, and a strict zero COVID-19 policy in China, the world's largest oil importer.

Trading recommendation: sell 91.50 and take profit 88.50.