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Dow Jones: First Weekly Decline after All-Time Highs

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Last week, the Dow Jones Industrial Average Index (DIA) fell 0.5% after four consecutive weeks of rises. It closed 0.8% below the all-time high. The concerns surrounding the trade deal could be behind Dow’s fall.

Yesterday, CNBC reported US National Security Advisor Robert O’Brien’s statement that “We were hoping to have (a phase 1) deal done by the end of the year.” Moreover, O’Brien added, “At the same time, we’re not going to turn a blind eye to what’s happening in Hong Kong or what’s happening in the South China Sea, or other areas of the world where we’re concerned about China’s activity.”

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Last week, Congress passed the Hong Kong Human Rights and Democracy Act of 2019. The diplomatic fight between US-China could rise. To know more, read Dow Jones: What’s the Outlook amid Trade Deal Tension? Furthermore, the US has expressed concern about the adverse impact of the CPEC (China-Pakistan Economic Corridor) on Pakistan’s economy. On Friday, China criticized the US diplomat’s comments on the CPEC.

The Dow versus global indices last week

Last week, the Shanghai Composite Index declined 0.2%. Japan’s Nikkei 225 fell 0.8% while India’s Nifty 50 rose just 0.2%. The iShares MSCI Emerging Markets ETF (EEM), which tracks emerging market stocks, fell 0.6%. Read EEM: Trade War, US Dollar, and a ‘Golden’ Opportunity to know more about EEM’s exposure.

The UK’s FTSE 100 Index outperformed the Dow Jones and rose 0.3%. However, Eurozone’s major indices like France’s CAC 40 and Germany’s DAX Index declined 0.8% and 0.6%.

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Dow versus gold

Last week, gold prices fell by 0.3%. However, this year, gold outperformed equities during rising pessimism around the US-China trade deal. For instance, in May and August amid the trade-war tensions, gold rose while the Dow Jones fell. To know more, read With Dow’s 800-Point Fall, Strategists See Gold at $2,000.

Usually, equity indexes like Dow Jones and gold prices’ moves are inversely related. Investors prefer to add stocks during the economic upturn. Gold demand rises when the uncertainty increases. In 2019 so far, the correlation between Dow Jones and gold prices has been 25.8%.

Moving averages

On Friday, the Dow closed 1.2%, 2.9%, 3.8%, and 5.5% above 20-, 50-, 100-, and 200-DMAs(day moving average), respectively. However, the 20-DMA around the 27,550 level is an important support zone for this index. Moreover, the 200-DMA at the 27,090 level is the next important support zone.

The concerns around the trade deal have risen, as discussed earlier. This week, the Dow Jones might test the 20-DMA. To know more about important macroeconomic developments, read China Slowdown, Trade, and Stocks: Connecting the Dots.

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