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Big Boris election win, trade deal very close

Investors might have two early Christmas presents this week, a phase one trade deal between the US and China and Brexit getting done.

Boris Johnson has won a “historic” victory for the Conservatives Party with one of the biggest victories for the party in decades. It’s a victory for relative stability on Brexit and the British economy. It will likely take some time for Labour to recover from this election. Labour Leader Jeremy Corbyn has said he will not fight the next election as leader, in effect announcing his resignation. The size of the defeat felt by the Labour Party means the kind of radical changes they had in store for the economy are less likely to ever materialise. That will be welcome news for investors who are waiting in the wings for some clarity from British politics about the direction it would take the economy.

It is now almost a foregone conclusion that Boris Johnson’s Brexit deal will be signed off by the end of January. Of course, Brexit is not yet complete. Negotiations over the future relationship with the EU will be tough and will likely go through some turbulent moments. The main point is that there is now an agreed direction of travel for Brexit. There is now a Prime Minister who has a strong mandate from the British people to get Brexit done how he thinks is best.

The British pound jumped 2% in a split second when the exit polls pointed to a huge Conservative majority and has held the gains since the results confirmed it. The big moves in the currency markets build on the already substantive gains for the pound since the election was called. Last night was the knee-jerk speculative response to the election but we think there is more room to the upside for Sterling.

The FTSE 100 looks set to open higher after some volatile trading in overnight futures. The prospect of a better business environment for UK-listed companies is offsetting the devaluation of overseas earnings from a stronger currency. We are expecting pro-cyclical and more domestic shares to dominate the gains on the FTSE 100 today. That might include the likes of banks and homebuilders. As a better reflection of the domestic UK economy, which stands to benefit from greater clarity on Brexit and the economy, the FTSE 250 index looks on course for a record high.

Outside of the UK, sentiment has been rising thanks to newfound optimism that the US can sign a phase one trade deal with China. Wall Street hit record highs in response to a tweet from President Trump. According to US sources, the deal has been agreed on both sides and just needs a sign-off from the US President. The prospect of a deal had seemingly dimmed on reports that the US would only delay new tariffs that are supposed to start this Sunday. If the deal gets official confirmation, then we would expect some extra gains in global markets. Rolling back tariffs in exchange for buying more agricultural products doesn’t fix any of the big trade issues. From a markets standpoint a phase one deal would just improve the chance of a global economic rebound next year.

21-9-2020

Trump approves TikTok deal, Powell & Superdry earnings
MARKETS The Dow Jones fell on Friday as investors had to contend with another selloff in big tech, led by Google. Friday moves came as four major types of options contracts were set to expire in a quadruple witching, triggering a rise in volatility. European e… Read more

18-9-2020

USD/JPY sub-105 and UK retail sales
MARKETS US stocks fell in volatile trading on Thursday amid renewed pressure in shares of major tech companies. Conflicting messaging on the coronavirus vaccine front and uncertainty around further stimulus also weighed on sentiment. European equities fell aro… Read more

16-9-2020

Buffett-backed Snowflake IPO & Fed Preview
MARKETS The Dow Jones ended roughly flat on Tuesday, pressured by a fall in financials and a u-turn in Apple after the tech giant launched a new services bundle and hardware. The S&P 500 was up 0.52% while the Nasdaq added 1.21%. Apple rose 0.2% but had be… Read more

14-9-2020

Brexit bill first debate & tech stock sell-off
Markets The major U.S stock indexes fell for the second week in a row, as technology stocks experienced their worst pullback since March. The market was volatile in a holiday-shortened week, with the Nasdaq posting a 4% decline on Tuesday followed by a nearly… Read more

18-5-2020

Gold hits 7-year high after Powell Warning
Fed Chair Jay Powell has warned the US economic recovery might last through the end of 2021. The Fed is normally too optimistic in its forecasts so the outlook feels bleak. Still, warm weather is encouraging countries to continue exiting lockdown. If the flu s… Read more

14-5-2020

Powell predicts more pain to come but no NIRP
A warning from the top of the US central bank that there’s more pain to come isn’t going down well across markets. Fed Chair Jerome Powell warned yesterday that more stimulus will likely be needed in the US to fend off the economic damage done by virus and pol… Read more

13-5-2020

“Suffering and death” warning hurts markets
A sense of caution has taken hold across markets. Shares, riskier currencies and oil are pointed lower. There’s a reassessment of the likely timeline for economic reopening. Our sense is markets juiced up by higher liquidity may have gotten ahead of themselves… Read more

12-5-2020

Bitcoin halving, dollar breakout on second wave fears
Market sentiment remains fragile. There’s a lot of emphasis being placed on the virus numbers in economies that have been gradually reopening.  Wuhan, the City in China where it all began reported its first ‘cluster’ of new cases yesterday after lifting restri… Read more