London Capital Group | Oct 09, 2019 08:48
Escalating tensions between the US and China painted the equity markets in red, as investors finally surrendered to the idea that the US-China talks may not lead to a deal at this week’s high-level negotiations.
US equities traded lower on Tuesday. The S&P 500 (-1.56%), the Dow Jones (-1.19%) and Nasdaq (-1.67%) closed in the red.
Australia’s ASX 200 slid 0.76%. Energy stocks (-1.82%) led losses in Sydney as oil slipped on rising fears of a further slowdown in global demand amid heightened political tensions between the US and China hinted at more trade disruptions ahead.
FTSE Futures (+0.04%) tested the 7100p support. British blue chips are set for a positive start in London. The overall direction will reflect a balance between a gloomy market sentiment and a cheaper pound – which could make the British stocks look attractive even with a morose risk appetite.
Gold climbed above the $1500 handle, though gains above this level have recently proved to be vulnerable to the slightest windfall in the markets.
The pound tanked to 1.2195 against the US dollar, after Boris Johnson accused Angela Merkel of making a deal ‘essentially impossible’. Not that investors have ever bet on a Brexit deal before the October 31st deadline, but the likelihood of a consensual divorce within the next two weeks is now down to nil, unless a miracle happens by then. This is not a surprise to any down-to-earth investor and the pound’s actual valuation fully reflects a no-deal scenario before the October 31st deadline, with a sprinkle of an unplanned Brexit menace if Boris Johnson found a way to bypass a law prohibiting him to take the country out of the EU without a deal in hand.
Hence, there is a tiny risk of a no-deal Brexit lingering, which, if materialised, would trigger a sizeable sell-off in sterling, but a relief rebound seems more plausible in the short term, if an untimely Brexit could be avoided. In other words, the pound is certainly close to a short-term bottom near the 1.2000 mark versus the greenback and the extension of the Brexit deadline will likely encourage a short-term recovery targeting the 1.25 handle.
FTSE to open 12 points higher at 7155
DAX to open 13 points higher at 11983
Written By: London Capital Group
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