Traders moved on from the tense G7 Summit with surprising ease on Monday, as attention swiftly turned to the US – North Korea Summit, which started overnight. Despite the prospect of worsening relations between the US and its closest allies and increased trade tensions following the strained G7 meeting, US indices closed higher as, lifted by sentiment ahead of the historic meeting between President Trump and Kim Jong Un.
The Dow closed marginally higher, whilst the S&P and the Nasdaq ended 0.1% higher and 0.2% higher respectively.
Dollar hits 4 session high on strong sentiment
The dollar has been a notable gainer overnight, strengthening against its peers as the historic meeting went ahead. Trump had been managing expectations by setting the bar low moving towards the summit and the fact that the tone was upbeat (and a vast improvement on the G7) lifted the dollar to a four-session high in the Asian session.
So far this is sentiment alone which is lifting the buck and creating a risk on vibe. Should we actually see this meeting produce something more tangible then risk appetite could increase further. Traditional safe haven, the Japanese yen dropped 0.2% versus the dollar, whilst riskier assets such as stocks received a boost, with Asian equity indices higher overnight and European bourses pointing to a positive start on the bell. Sentiment aside, this meeting will actually mean very little for global growth, so the positive market reactions could be short lived.
Dollar traders are in for a busy day, with geopolitics setting the tone to early trade, whilst US inflation data will bring potential Fed action later in the week back into focus. Core CPI is expected to have ticked higher in May to 2.2%, up from 2.1% pointing to increased price pressures for yet another month. A strong reading could fuel speculation of a more hawkish Fed, as policy makers meet for the FOMC, boosting the appeal of the dollar further before the rate decision on Thursday.
Tough start to the week for GBP, labour data to help?
The pound has had a tough start to an event packed week. With an unexpectedly poor manufacturing reading, investors will be looking towards UK labour data with a little more optimism. Whilst unemployment is expected to remain at 4.2%, earnings growth is forecast to remain constant at 2.9% in the 3 months to April. Inflation in April was 2.5%, meaning that for a third straight month consumer should have enjoyed an easing of pressure on their purses, an encouraging sign for domestic growth.
The number of unemployment claimants will also be released for May and is worth keeping an eye on. Last month the number of claimants jumped, spooking investors as this is often considered a sign for a loosening labour market down the road. Another weak reading here could see the pound target $1.33.
Key Brexit vote expected to pass, just
Today’s data come on top of Brexit developments, which are likely to be high on the agenda for pound traders. PM Theresa May has attempted to appeal to Conservative rebels to support her as the Brexit Bill returns to the commons for a key vote. Whilst the Lords have made amendments opting towards a softer Brexit, the pound would usually be expected to rally at the slightest hint of a softer break. However, a vote in that direction would throw up more concerns over May’s ability to keep hold of power, potentially over shadowing any softer Brexit tone.
The general consensus is she may have done just enough to scrape through this time around.
Opening calls
FTSE to open 13 points higher at 7750
DAX to open 51 points higher at 12893
CAC to open 18 points higher at 5491