Financial market research and analysis

The Dow and the broader US market extended the relief rally on Wednesday amid easing trade tensions. News that Trump would restart trade talks with China boosted optimism that the two powers could avoid a prolonged, economically damaging trade war. But it would be understandable if investors don't read much into Trump's latest pivot.

Trump’s meddling is almost single-handedly driving the markets right now. It's not so much Adam Smith's invisible hand but a very visible hand of President Donald Trump. The President’s almost hap hazard approach, of sounding optimistic over trade talks, before turning confrontational that is creating high levels of uncertainty and volatility. European and US futures are heading to a lower start today after strong gains in the previous session.  

The positive close on Wall Street didn’t spill into Asia, where stocks put in a mixed performance as President Trump imposed sanctions on Chinese telecom giant Huawei. Huawei and 70 of its affiliates have been placed on a list forbidding them from doing business with American firms. Meanwhile, auto stocks continued a rally which started in the European session on reports that President Trump is considering delaying tariffs on the sector by 6 months. Whilst the likes of BMW, VW and Daimler rallied in the previous European session, Kia Motors and Hyundai were standout performers in the Asian session.

Dollar lower as rate cut bets increase

After weak Chinese data and soft US retail sales, traders are growing increasingly concerned over the impact that any prolonged trade war will have on the global economy. US retail sales unexpectedly fell in April as consumers held off from bigger purchases such as motor vehicles. The softer US data has investors once again increasing bets that the Fed will be looking to cut interest rates rather than hike later this year. According to the CME Fed funds the market is now pricing in a 76% probability of a rate cut. This is up 26% since the last Fed meeting. As a result, the dollar was slipping lower in early trade on Thursday.

Sterling pauses at $1.2850 after heavy losses

The pound was holding steady at $1.2850 after shedding 1.1% so far this week. Brexit concerns aren’t going anywhere fast. Theresa May plans to bring her Brexit deal back to Parliament for a fourth time, pound traders are increasingly convinced that it won’t get the backing it needs. Labour have already sad that they won’t back the deal in its current form, meaning the chances of the PM’s Brexit deal being pushed through Parliament are slim at best.

Another failure whilst almost certainly mean Theresa May is out. The big question then is who will take her place? Pound traders are growing increasingly nervous that Theresa May will be replaced with a hard-line Brexiteer. This means the chances of a softer Brexit are fading and dragging the pound lower.

Oil extends gains

Oil extended gains for a third straight session as rising tensions n the Middle Est overshadowed a surprise increase in US stockpiles. After sabotage attacks on Saudi Arabian oil station and tankers earlier in the week, the US withdrawing from its Iraq embassy on security concerns has heightened concerns. Crude is up 0.5% in early trade targeting $62.50 in the near term.

Opening calls

FTSE to open 34 points lower at 7262

DAX to open 61 points lower at 12035

CAC to open 1 point lower at 5375