London returns from a three-day weekend and the FTSE has some catching up to do after a positive close for European markets on Monday. A strong finish in the US amid better news on trade is setting Europe up for a higher open.
Wall Street finished in positive territory with the S&P500 and Nasdaq making new record highs for a 2nd day running. The Nasdaq composite hitting 8000 for the first time demonstrates the broad-based gains taking place in US stock markets.
Trade talks between the US and Mexico bearing fruit persuaded investors to continue their buying spree. Trump dubbed the new deal the ‘United States Mexican Trade Agreement. Having a replacement for NAFTA saw trade-sensitive stocks like Caterpillar (NYSE:CAT), Boeing (NYSE:BA) and automakers lead the gains.
If the deal with Mexico is a sign of things to come, emerging markets are more attractive from a valuation standpoint- but the US still has all the momentum. There is clearly bemusement amongst many economists that the rising tariffs are not causing greater concern for US investors. We think, from the beginning it has been clear investors believe there can only be one winner any these disputes and that is the US. While emerging markets, including China have fallen into bear market territory, the record US bull market presses onwards.
Forex markets continue to price in the more dovish tone from Fed Chair Jerome Powell at his Jackson Hole speech. As noted previously, Powell really did not say anything different, but given the fiscal tailwinds for the US economy and the 4% GDP growth, many thought he had room to be more positive.
With the dollar on the retreat, EURUSD has jumped three handles in the last two weeks to break 1.16. Returning from her summer break German Chancellor Angela Merkel has said she plans to ‘protect European interests’. If protecting European interests means standing up to Trump in a trade war, Europe and the euro stands to lose. However, if European interests were to be served by Germany spreading out some of its budget surplus across Europe, that could attract foreign investors back into European markets. Nevertheless, given Ms Merkel’s weak standing in German parliament after the last election, the latter seems unlikely.
Opening Calls
FTSE to open 39 points higher at 7616
DAX to open 29 points higher at 12,567
CAC to open 9 points higher at 5,488
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