Trade Tensions De-escalation Boosts Risk Appetite; FTSE Points Higher Despite Theresa May’s Future Looking Increasingly Uncertain – LCG Research Team.

 


Wall Street experienced large swings overnight as easing trade tensions between the US and China were overshadowed by Trump’s threat of a government shut down if his Mexican wall wasn’t approved. Moving into Asia, yet more positive news pointing toward a de-escalation of trade tensions ensured a positive Asian session and a lift to European futures.

Trade headlines continue to be the central theme for the markets with headlines showing the ability to cause wild swings. Over the last 24 hours, US-Sino headlines have been more positive in nature, boosting optimism that the de-escalation of trade tensions, which started at the G20, could be back on track. China reducing tariffs on US cars, Trump stepping in over the Huawei case and sounding upbeat about a trade deal have encouraged traders to put risk back on the table. Riskier assets are back in demand, whilst flows out of safer havens such as the Japanese yen have increased.

Investors are running with the more positive tone to headlines whilst they can. However, there is a distinct air of caution. Traders are jittery, which we can see from these wild swings in recent sessions. We are just one headline away from another heavy sell-off in what has been an extraordinarily choppy market.

Whilst US-Sino trade developments have dominated the risk on tone overnight in Asia, we can be sure that traders will keep a close eye on Trump’s threat to shut the government down over coming sessions.

Pound Edges Back Over $1.25, But for How Long?

The pound is edging higher after a heavy sell-off overnight. Rumours that the 48 letters required to trigger a vote of no confidence had been received saw the pound drop to a 20-month low below $1.25. Whilst the pound is back over $1.25 in early trade we can expect it to remain under heavy pressure. A vote of no confidence could be called by the end of the day. The overwhelming fear for pound traders is that Theresa May could be replaced with a hard-line Brexit supporter, which would increase the probability of a no deal Brexit. Sterling is not fully pricing in a no deal Brexit by any means, but as the chances of a no deal Brexit increase, the pound drops further.

A leadership challenge throws another spanner into the works of what is an already extremely uncertain situation. Huge uncertainty surrounds whether Theresa May can see off a leadership challenge and the prospects of a general election, second referendum or even a no deal Brexit.

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please note that 79 % of our retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing money.