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Asian markets joined the relief rally overnight, which saw stocks on Wall Street surge, after the Trump administration delayed tariffs on some Chinese imports until December. Good news in the markets has been a rarity over recent weeks, so reports of the delay provided some much need relief to markets that have been gripped by political and economic turmoil.
The tariff delay overshadowed a slew of disappointing data from China and continued political unrest in Hong Kong, highlighting just how keen the markets are for some form of resolution to the ongoing problem. The S&P closed up 1.5% whilst the Nasdaq was the standout gainer soaring 2%, not so surprising given that electrical items such as laptops and mobile phones dominated the list of items for which duties will be delayed.
The tariff delay has prompted a cautious rebound in risk appetite, with flows returning to riskier assets such as equities. Futures across Europe and US are pointing to a stronger start on the open. Safe havens, which have rallied hard across recent weeks moved sharply lower. The Japanese yen declined 1.2% versus the dollar, whilst gold also gave back 0.7% dipping back below $1500.
China’s vice premier Liu He, US Trade Representative Robert Lighthizer and Steven Mnuchin US Treasury Secretary, have agreed to speak again in two weeks, offering hope to traders that this could be the start of a more constructive phase in trade talk negotiations. That said, any optimism comes with a large dose of caution; the fact that Trump changed his mind so quickly regarding applying the tariff and then delaying them highlights his hot headed and haphazard approach to negotiations which could act as a significant barrier to any trade deal being achieved.
German GDP to send EUR to $1.11?
On the economic calendar German GDP data is expected to steal the show. Given the dismal data stemming from Germany over recent weeks a contraction in the German economy is looking highly likely. Expectations are for -0.3% decline following 0.6% gain in the previous quarter. After a decade of being a powerhouse for growth, the German economy is starting to lag behind as it remains caught up in the US – Sino trade dispute. A weak reading could see the EUR/USD break through $1.1160 and target $1.1100. A stronger than forecast reading could see the pair move back towards $1.1220 prior to $1.1250.
Pound more interested in Brexit than UK inflation data?
The pound continued to trade around $1.2050 mark giving back strong wage data inspired gains by the end of the session yesterday. Today UK inflation could grab some attention. However, the message from the pound has been clear. Brexit is the single most important driver of the pound. Brexit headlines are more likely to move sterling in any meaningful way. This is quite simply because BoE monetary policy greatly depends on the type of Brexit the UK achieves. Inflation is expected to tick lower.