Financial market research and analysis

Asian markets took the lead from Wall Street overnight, rallying as the latest tit for tat measures in the escalating trade spat have not been quite as severe as the markets had been expecting. Tech stocks were also heavily in demand, bouncing back after steep losses earlier in the week. Avoidance of a worst-case scenario in tit for tat measures between the US and China lifted the S&P 0.5%, saw the Dow close in positive territory for the 5th session in 6 and saw the Nasdaq gain 0.8%, with Netflix, Apple and Amazon all closing higher. Strong gains in Wall Street and Asia provided a solid cue for European bourses to open in the black.

Worst case scenario avoided

The Chinese were quick to respond on this occasion to the White House, slapping tariffs of 10% on $200 billion worth of Chinese imports. Previously, the Chinese have taken longer to retaliate and it’s the fear of not knowing what to expect that has dented market confidence. The Chinese responded by placing levies on 5000 US goods, valued at $60 billion. However, a 10% tariff will be placed on some goods instead of the expected 20%. This is leaving investors to conclude that the latest round of tit for tat measures was not a worst-case scenario by a long shot. Trade bellwethers given their large overseas exposure, Boeing and Caterpillar rose 2.1% and 1.95% respectively.

Trade tensions to drag into 2019?

Whilst global equities are in relief rally mode, this is clearly not the end of the road for this trade war. Reports suggest that China won’t be returning for the latest round of trade talks, which means the White House could soon step in with the latest threat of tariffs on an additional $267 billion of Chinese imports and the trade war will almost certainly drag on into next year. Yet investors are happy to look past this right now, allowing stocks to move higher.

Why the latest Brexit news lifted the pound?

News overnight that EU Chief negotiator Michel Barnier has fulfilled his desires to de-dramatize the Irish border issue lifted the pound to $1.3175, its highest level in 7 weeks. The EU negotiator describing the Irish border as a set of controls rather than any form of physical barrier is the clearest sign yet that Brussels is willing to reduce tensions over an issue which threatened to prevent a Brexit deal. Given the pound’s sensitivity to any Brexit headlines, this pro-Brexit deal news has once again lifted pound traders’ spirits that a Brexit deal may just get pushed through as the deadline looms closer.

The pound has eased back from an overnight high, however, it may struggle to push higher after the release of inflation data. With CPI and core CPI both expected to tick lower, the pound bulls could lose control as the realisation hits that any tightening from the BoE is still a long way in the distance.

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