Financial market research and analysis

The broader US market wobbled overnight with the S&P flat and the Dow ending lower, despite a decline in benchmark borrowing costs. The Nasdaq managed to snap a three-day losing streak as investors returned to tech “growth” stocks, which were ditched as treasury yields rose earlier in the week. Growth/tech stocks have tended to underperform in rising interest rate environments.

Asian markets were mixed overnight, steadying after a heavy sell-off earlier in the week. European bourses are pointing to a lacklustre and marginally lower start. Uncertainty is prevailing in the financial markets, as we are seeing more investors opting to wait and see how risks surrounding rising US treasury yields, global growth and China play out. Near-term risks to global financial stability have increased rapidly over the past few months. The markets have been relatively complacent, but we are starting to see an acknowledgement of these risks which is keeping traders on the sidelines.

Dollar Eases as US Yields Decline

The decline in Treasury yields saw the dollar ease back from its recent 7-week high. Whilst the dollar rally was on pause overnight it is unlikely to remain that way for long. With uncertainty over China trade tensions and Italian budget concerns still at large, combined with a hawkish Fed we expect the dollar to strengthen again soon. The buck barely reacted to Trump’s open displeasure of the Fed hiking rates.

Pound Jumps on Brexit Speculation

The pound was the best performing G10 currency in the previous session and continued to push higher overnight. Sterling traded close to a 4-month high versus the euro and at its highest level this month versus the dollar on Brexit speculation. Rumours circulating that the terms for a Brexit deal could be agreed as soon as Monday sent sterling meaningfully through $1.31 and bounding towards $1.32. So far there has been no official comment on the media speculation and we continue to see the pound trade on the hopes and fears of the Brexit narrative.

Concrete developments remain cloudy at best and this wouldn’t be the first time that market supporters of a softer, orderly Brexit are jumping the gun.

UK GDP; a hindrance to the pound’s rally?

In the absence of any Brexit developments, investors will switch their attention to the UK economic calendar. This week is a noticeably quiet week for the UK economic calendar, with the weeks most influential releases all due today. First up, the UK GDP figures could be in danger of denting growing optimism for the pound. UK economic growth is expected to have eased to an anaemic 0.1% month on month in August, down from 0.3% the previous month. UK manufacturing and industrial production are expected to tick up marginally, although this is unlikely to cancel out the impact of significantly weaker economic growth.