Markets hope for ease off in China v US wrestling match

Of the two big stories this morning, the apparent easing of US-China relations seems to have been of most comfort to the overnight markets.

Huawei still at centre of China spat

Arrested Huawei CFO Meng Wenzhou has been granted bail, although the apparent detention of two Canadian nationals in China, in seeming retaliation to Meng’s detention, has not gone unnoticed. Still, Chinese importers have started buying US soybeans again, which is being hailed as evidence of the 90 day truce proposed at the G20 summit in action, and Huawei itself has been seeking to make conciliatory gestures to governments and companies worried about security. The S&P 500 closed last night up 0.54%, although there was evidence of heavy selling towards the end of the US session. Hong Kong’s Hang Seng was also feeling more bullish, closing up 1.29%.

Pound responds to May victory

The other big story was Theresa May’s victory following a no-confidence vote by backbench rebels last night. The markets had been anticipating a May victory for most of the day and were proven right in the end. The FTSE opened marginally up this morning, despite being relatively range bound for most of the afternoon trading session in London yesterday, as traders sat on their hands and awaited the evening’s action. The pound was similarly sluggish yesterday but has rallied slightly against the USD in overnight trading. Overall, markets seem upbeat as May returns to her task of seeking further concessions on the Brexit deal with Brussels and avoiding a possible cross-parliamentary vote of no-confidence which may still be awaiting her if Brussels does not budge.

But in Washington Trump threatens government shutdown

Some potential road bumps lie ahead later this week for US markets. Traders in the US are becoming more sensitive to negative news flow and one possible issue to focus on will be a potential temporary government shutdown as the Trump administration starts to discover what it feels like to run the country with no majority in the House of Representatives. Trump has already had a stormy on camera meeting with Congressional Democratic leaders which has demonstrated how difficult it is going to be to get the funding he needs for the proposed wall with Mexico. But it also signals another round of brinkmanship reminiscent of the Obama era, with the Federal government again facing shutdown. There is a good chance this will bring more volatility to US equity markets next week unless some back office deals can be concluded with Capitol Hill.

TUI shares soar on back of positive earnings

Travel operator TUI was leading the market this morning, with shares up over 5% as it ended a challenging 2018 for the travel industry generally by announcing anticipated earnings growth. TUI reported that revenue was up 5% in the year to the end of September and forecast annual growth of at least 10% in underlying EBITDA in the three years to 2020. This seems to have gone down well with investors who are used to horrific reports from this sector.