Financial market research and analysis

Whilst risk sentiment has been healthy across the week, this swelling optimism boosted US stock markets to an all-time high overnight. A rally in tech stocks, which have done a lot of lifting for the indices over the year, in addition to fading concerns over US-Sino trade tensions saw the S&P and the Dow reach record levels.

This optimism and risk on sentiment drove Asian markets higher overnight and is leading European bourses to a strong start after the opening bell.

Concerns over the trade war continued to ease overnight after the latest round of tit for tat measures, announced earlier in the week, were lower than what traders had been expecting. The reality is we will need to wait until Chinese export data early next year to see the real impact of the tariffs on the Chinese economy and before then we have the US midterm elections to get through, making any resolution to the trade spat unlikely after November. This has become a long-term issue for the markets, which they are able to shrug off for the time being.

Safe haven yen hits 2-month low vs dollar

In the currency markets, risk on sentiment drove the Japanese yen to a 2-month low versus the dollar, whilst the euro and the pound rallied to 2-month highs versus the greenback.

Still more upside for the pound?

The softer dollar combined with stronger UK retail sales and inflation data saw the pound surge to $1.3298, its highest level since mid-July, even as little progress on the Irish border issue was being made at the EU informal summit in Salzburg. Even though the pound eased slightly into the close overnight, it managed a close above its 100 MA for the first time in 4 months suggesting there could be more upside to come.

The pound is proving to be resilient as the thorny issue of the Irish border threatens to completely detail Brexit talks. Yet even if Theresa May bows to European Council President Donald Tusk’s unexpected ultimatum to find an Irish border solution in the next four weeks, she could struggle to get any deal through Parliament, with David Davis lining up MP’s who will vote against May’s plans to leave the European Union. Despite the negative headlines, both the EU and Theresa May seem more motivated than ever to get a deal done and this is ultimately what is offering support to the pound. Any Brexit positivity could see the pound reach towards $1.3360 before targeting $1.35.

A word on oil

Oil prices continued to struggle overnight, following Trump's demand for OPEC to bring the price of oil lower. Trump's intervening comments come ahead of the OPEC meeting in Algeria at the weekend. Whilst OPEC don’t set their agenda on Trump’s demands, it would be wrong to assume that the comments will be completely ignored by the cartel.

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