Risk on as trade truce celebrations continue

An upbeat start to December was more than evident in today’s session following the weekend’s trade war truce. Investors were quick to put risk back on the table jumping into equities whilst flows out of safe havens were on the increase. The FTSE jumped to a high of 7145 in early trade as oil & mining stocks traced commodity prices higher. This combined with a weaker pound and a stronger start on Wall Street ensured the FTSE was still up over 1.5% heading into the close.

Oil rebounds after heavy losses in November
Oil rallied over 5% on the trade truce and expected oil cuts. With the trade truce expected to keep demand expectations stable and the OPEC meeting set to reduce supply, this week looks set to be a win win for oil. The growing trade tensions between the worlds two biggest economies had weighed heavily on global trade and sparked fears of a global slowdown in growth, which hit sentiment for oil. Furthermore, oil was on the list of products facing import tariffs meaning its outlook had been bleak. After diving 20% in dismal November trading, the bulls are back, at least for now. Looking ahead to the OPEC meeting later this week, the market is starting to price in a substantial production cut as Russia affirmed continued cooperation with Saudi Arabia.

GSK dives on Tesaro deal
Despite the celebratory mood, investor goodwill failed to spread to GSK. GSK dived as investors reacted to GSK’s Tesaro deal. GSK agreed to buy Tesaro for $5.1 billion. This 60% premium to Tesaro’s closing price on Friday, proved too much for investors to stomach and sent GSK tumbling over 6%. GSK has previously sat on the side-lines as rivals engaged in deal making, a situation current Chief Executive Emma Walmsely is keen to change. However, her enthusiasm is clearly not share with shareholders.

Sterling’s struggles continue
GBP/USD was ignoring dollar weakness and fell lower, as Brexit uncertainty overshadowed the risk on sentiment evident in every other corner of the market. The pound tumbled across the session, not even perked up by significantly better than forecast manufacturing activity data.

The manufacturing pmi jumped to 53.1 in November, up from 51.1 in October and significantly ahead of the 51.7 expected. However, delving deeper into the numbers, the jump is owing to an increase in domestic orders. This raises the question of how much of this is actually down to Brexit? With the probability of a no deal Brexit seemingly increasing by the day, stockpiling by firms could well be on the increase; a phenomenon that we expect to see more signs of as more firms initiate contingency plans.

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