Equity Rally Pauses As Investors Await More Evidence

Global equities ended a four day rally on Thursday as reality set in over what was actually achieved in the US – China trade talks, and as the US government shutdown rattles on. The FTSE was faring better than its European counterparts paring losses, thanks in part to the Brexit weakened pound.

Equities across the globe were on the back foot as investors reflected on the recent US – Sino trade talks. Despite the one-day extension to negotiations and Trump tweeting that the talks went “very well” there has been very little else for traders to go on. Without solid evidence or action, the rally was never going to be sustainable. Investors are preferring to hang back and see what the next chapter looks like before taking this rally further.

Pound stumbles on Brexit uncertainty
Following yesterday’s sell off the dollar is clawing back lost ground, particularly against its European peers. The pound was trading 0.5% lower versus the dollar as Brexit uncertainties continue to dominate amid the airing of the Brexit agreement in Parliament. This combined with signs of an economic slowdown as retailers failed to increase their sales this Christmas from a year earlier has put the bears firmly in control.

Tesco jumps on strong sales
Retailers are a central focus this week as the give the market an insight as to how they performed over the all-important Christmas period. Tesco bucked the trend in the sector surging 2% after a 2.2% rise in like for like sales. Tesco is a clear winner for 2018, but with price slashing back in play investors will be watching Britain’s biggest retailer closely.
Eurozone risks balanced to the downside

The euro was on the back foot against the dollar following the release of the ECB monetary policy minutes. Whilst ECB Draghi stated that risks surrounding growth in the region were broadly balanced, he also commented that the balance of risks was moving to the downside. With ECB policymakers believing that risks could persist in the eurozone, the minutes were far from encouraging.

Powell to talk the dollar down?
Investors will now turn their attention to Federal Chair Powell, who is due to give a speech this afternoon. Jerome Powell’s more dovish tone, eased market jitters last week boosting risk sentiment and sending stocks higher. The minutes from the FOMC meeting had the same effect. However, the prospect of a more cautious Fed is weighing on demand for the dollar and is the principal reason behind recent dollar weakness. A dovish Powell could see the dollar give up today’s gains and head southwards once again.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.