Financial market research and analysis

Markets across the board kicked the week off on the front foot, following a positive end to Friday’s session on Wall Street; a rally which was not necessarily expected. US indices pushed higher at the end of the last week, despite the firing of the trade war gun, as US trade tariffs on Chinese imports got underway and Beijing, promptly retaliated announcing tit for tat measures.

Whilst fears over a trade war were being fanned, actual data showed the US economy was soaring with a healthy labour market; the number of jobs created in June beat expectations paving the way for further gradual rate hikes by the Fed and giving plenty for traders to be distracted by.

Just because US equities didn’t experience a sell-off on Friday, it doesn’t mean that a trade war is already fully priced in. The actual trade tariffs are nothing new, the market has been aware of them for over a month, and for now, conditions are still supportive of financial growth, allowing markets to move higher.

Sentiment could remain resilient until we see solid evidence of these trade tensions feed through to softer economic data, particularly in China. For the time being, relief continues to fuel the rally which has seen China jump over 2%, Nikkei over 1% and the FTSE futures climbed 0.6% despite the slight uptick in the pound.

Can Theresa May Ride Out This Latest Challenge?

The pound jumped higher, to $1.3319 at the start of trading as investors continued to digest the softer Brexit stance pushed through by Theresa May, on Friday, at a crunch meeting with her waring Brexit cabinet. 3 resignations since, by hard-line Brexiteers including Brexit Secretary David Davis, has cast some doubt on May’s ability to ride this one out, pulling the pound lower shortly after the initial, softer Brexit inspired a jump.

Today and the next few days will be key for Theresa May’s survival and the buoyancy of the pound. The pound has fallen away from its opening high versus the US dollar, but not actually swung lower on the day, suggesting that investors believe she will keep hold of the reins.

Yet, even if Theresa May does manage to ride the course of this latest Brexit upheaval and remain at the helm with a united party behind her, the big task is to convince the EU that they should progress with negotiations on this latest proposal. So, whilst Friday’s developments are certainly a step in the right direction for the pound, any sterling gains will be capped until there is more clarity from the EU over the viability of the option, which will only come once the white paper has been published later this week.