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A Pause in Trade Threats See the Markets Calm

Risk settled in the previous session as a lull in the China-US trade spat enabled traders to shift their attention to other events, including the appearance of key central bankers in Sintra. The rather undeserved calm across the overnight session saw the S&P close 0.1% higher, whilst the FAANG’s led the Nasdaq to a new record high. In contrast, the Dow, gapped higher on the open for the first session in four, before dropping to close lower for the 7th straight session, its worst run since early 2017. 

 

The lack of fresh threats from Trump’s administration has been enough to see a rapid easing in risk aversion, however, the reality is that fundamentals remain under pressure. Furthermore, we have been reminded that this is not just a US – Sino war, with the European Union announcing $2.8 billion worth of trade tariffs in response to US levies announced on metals back in May. Yet even with China and Europe retaliating the markets are happy to continue pushing higher; Asian gaining ground overnight and Europe in line for another positive start.

 

Will BoE Hint Towards August Rise?

The pound’s rally inspired by Theresa May’s win in Parliament as she faced down Tory rebels was short-lived, with the pound once again grinding lower across the US session. The pound continues to trade around 6-month lows as we look ahead to a potentially volatile day with two main risk events. Firstly, the BoE rate decision; whilst it is easy to get lost in trader talk and tariffs, central banks are still a key pillar and critical theme to keep an eye on. Whilst the BoE are broadly expected to keep the rate on hold, traders will be pouring over the minutes for any further clues as to the likelihood of an August hike. With data since the May meeting decidedly mixed and Brexit risk increasing, the risks appear tilted to the downside. Even so, we are expecting the central bank to adopt a wait and see approach to keep the door open.

 

Mansion House Speech

Should the BoE continue with wait and see rhetoric, Mark Carney and Chancellor Philip Hammond are in danger of overshadowing the BoE rate decision with the Mansion House Speech. Brexit has been a key theme for sterling across the week as the Brexit Bill ping-ponged between Houses. Philip Hammond is expected to stick to this theme, discussing life after Brexit but in relation to global trade and developing fresh global final partnerships. Whilst his tone may be surprisingly optimistic for such a hard-line Remainer, it’s doubtful whether it will have real market moving substance. Meanwhile, Carney could set speculation moving forward for a rate hike this year, meaning he could do more than the BoE to move the pound.

 

Crude Higher as OPEC Meeting Comes into View

Crude will remain under the spotlight as we approach the OPEC meeting from Friday. With IEA claiming the oil glut which sent prices plunging in 2015/16 has now been resolved and the fact that OPEC is producing less than its self-imposed restriction, it’s hardly surprising that some OPEC members believe oil will be vulnerable to prices moving higher. Whilst Saudi Arabia and Russia are two key players strongly in favour of increasing output, Iran has been a noisy protestor.

 

The market appears to be expecting a gradual rise from OPEC and Russia, meaning should no agreement be reached then oil will surge higher.

 

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