Trade Dispute Anxiety Keeps Sentiment Fragile
Wall Street rallied, with tech shares paring losses from earlier in the week as investors reacted to the Trump Administration relaxing the rules against Huawei, at least for a few months. The positive sentiment failed to transfer across to Asian markets overnight, which were little changed. Traders are waiting for the next chapter in the unfolding trade drama. Sentiment remains fragile as investors digest the changing face of the trade dispute from broad sweeping tariffs to direct action against single Chinese companies. Some investors are clinging to hope that a US – China trade deal can still be achieved, most likely at the G20 at the end of June.
Dollar at 2 week high ahead of US Fed minutes
Traders are turning their attention towards the release of the minutes from the latest Federal Reserve monetary policy meeting from earlier this month. The minutes come from a meeting in which Fed Chair Powell was less cautious than investors had been anticipating and the minutes could reflect a similar message. Particularly given that the May meeting took place before the escalation of the trade dispute. So it's worth considering that the minuets are quite outdated.
A prolonged trade war would negatively impact the US economy and the Fed could try to cushion this by cutting interest rates. According to the CME Fed funds a 25-basis point interest rate cut by the Fed before the end of the year has now been fully priced in.
Despite increased expectations of a rate cut by the end of the year, the dollar remains elevated. It is quite simply the best of a bad bunch: Brexit weighs on the pound, growth concerns on the euro, the Aussie and Kiwi are also suffering from the trade war and rate cut forecasts. It’s just the yen and its quality as a haven which has been more in demand than the buck.
Pressure builds (again) for PM May to resign
After briefly spiking higher in the previous session, the pound continues to hover at 4-month lows after Theresa May’s Brexit gamble fell flat. Hopes of a vote on a second referendum were dashed when There May conditioned it to voting for her Brexit deal. There is little hope of Theresa May’s deal being passed in Parliament and pressure is mounting for her departure before a fourth humiliation.
Opening calls
FTSE to open 20 points higher at 7348
DAX to open 11 points higher at 12154
CAC to open 7 point lower at 5377
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