Trade deal enthusiasm sends stocks higher

Fiona Cincotta
By :  ,  Senior Market Analyst
Positivity from the Asian markets overnight flowed through to the European session and also set Wall Street off on the front foot. News that the US and China were nearing a trade deal saw investors putting risk back on the table.  Let’s not forget a trade deal between the US and China would be a sizeable catalyst for global markets. Trade tensions and the impact on global growth pulled the Dow from its all-time high in September and just on the suggestion of the two leaders meeting stocks are significantly higher.

The Dow opened higher and has since pared gains as trade deal enthusiasm starts to cool. This is certainly not the first time that we have heard this headline and I am quite sure it won’t be the last. Given the rally that we have so far across the start of the year, markets are pricing in a positive outcome from this trade dispute. More attention will start to be placed on China and the possibilities of a resurgence in growth.

The FTSE led the charge in Europe, climbing higher than its European counterparts’ thanks in part to the weaker pound.

Pound drops as construction sector slips into contraction

Despite a strong start for the pound, dismal construction sector data and a strengthening dollar, saw cable drop below $1.32. The UK construction sector slipped into contraction in March, dropping to 49.5. This is the weakest reading for the sector since March last year. Brexit uncertainty slowing business decisions, holding up investment and builders unable to get the materials required amid increased stockpiling are hitting the sector. The pound dropped lower on the release, falling below $1.32. It is currently encountering resistance at $1.3180, a meaningful break through this level could open the doors to $1.3160. 

With manufacturing and construction showing the impacts of Brexit, traders will look towards the service sector pmi tomorrow. The dominant service sector grinded to a halt in January and the expectation is that February wasn’t much different. Given broad weakness across all sectors of the UK economy, it is difficult to see how the Britain will avoid a contraction in the first quarter. 

Dollar shrugs off Trump’s comments

Dollar was resilient on Monday, moving higher versus the pound and the euro as traders shrugged off Trump’s efforts to talk down the dollar. As trade talk optimism boosted treasury yields, the dollar followed suit.

Euro struggles ahead of ECB announcement

The euro was a noticeable decliner on Monday as investors look ahead to the ECB rate announcement later this week.  Speculation of further monetary easing for the region is dampening demand for the euro. There is a good chance that investors are getting ahead of themselves here. A decision to this effect would be admitting that the end of QE in December was in fact a mistake.

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