Following a stronger session in Asia overnight, the FTSE powered higher on the open. After a disastrous previous week which saw equities experience the worst week this year, risk appetite was showing strong signs of improving. Last week fears of a global recession amid the ongoing US – Sino trade war dragged on sentiment. As the new week kicks off, stocks are in demand amid increased optimism over US and China reaching a trade deal and as investors anticipate stimulus measures to sure up slowing economies.
Germany has said that it will increase spending should the German economy fall into recession. Given that Germany contracted in the second quarter and data points to further softening in the third quarter a recession is looking increasingly likely. China also joined the stimulus chorus, unveiling measures to reduce borrowing costs for companies to sure up its slowing economy. Adding to the optimistic atmosphere, President Trump also expressed optimism over reaching an agreement with China. This would address what is considered the root cause of the global slowdown.
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Central bankers will be meeting at the end of the week at the annual Jackson Hole meeting in Wyoming. The meeting takes place to a backdrop of financial markets flashing recession warning signs, adding to rising pressure for further support from central banks.
Yields ease, gold falls and Fresnillo (LON:FRES) drops to the bottom of the FTSE
Concerns over the health of the global economy sent investors towards safe havens such bonds, causing the yields to soar and US and UK yield curves to inverse. Gold and the Japanese yen also benefited from the safe have trade; both are seen moving lower in early trade on Monday.
Precious metal miner Fresnillo (LON:FRES), which has benefited royally from gold’s impressive rally over the past few weeks was tracing the precious metals lower in early trade, topping the FTSE leader board.
Pound edges lower on Yellowhammer paper leak
The pound is edging lower in early trade, offering some support t the FTSE as investors digest the content of Yellowhammer papers, government contingency planning for a deal Brexit, which were leaked. To say that the picture looks bleak would be an understatement. Trade disruptions, food and medical shortages in addition to civil unrest for the days, weeks and months following a disorderly Brexit could be expected. Given the depressing nature of the content of the Yellowhammer papers, the reaction of the pound has been relatively muted. Pound traders look ahead to a speech by opposition leader Jeremy Corbyn as to how a disorderly Brexit could be avoided.