Stocks across Europe charged higher on Monday, shaking off last weeks’ risk off tone. As US – Sino trade talks begin in Beijing we are once again seeing the markets adopt an all too familiar optimistic stance regarding the US – Sino trade developments.
The world’s two largest economies have around three weeks to cover some serious ground before US trade tariffs increase from 10% to 25%.
The reality is that we are unlikely to see any big moves towards a deal this week. With little solid evidence of progress, markets are pinning their hopes on the trade truce deadline of March 1st being extended. At these levels the market is not pricing in the hike in tariffs and the damaging consequences on the Chinese and global economy.
Risk-on dampens demand for gold
As risk on dominated and the dollar extended gains for an eighth straight session, gold headed for its first drop in three sessions. The precious metal is down $9 dollars from the session high as it retests $1310. Gold traders will also be keeping a close eye on developments in Beijing. Headlines suggesting the two sides are moving closer to a deal could see gold fall back below $1300.
The FTSE snapped a three-day losing streak, supported by US-Sino trade optimism, a stronger start on Wall Street and a sharply weaker pound.
Pound skids lower as UK economic growth cools
The pound dropped lower following the release of some sluggish GDP data. On learning that the UK economy grew just 0.3% quarter on quarter at the end of last year, the pound dived, breaking through resistance at $1.29. On an annual basis growth was at just 1.4%, its slowest pace of expansion since 2012.
Economic growth slowed as businesses cut investment for a fourth straight month, the longest running decline since the financial crisis. The obvious issue here is Brexit. With just 46 days to go until the UK leaves the EU and no deal agreed, its completely logical that businesses are cutting investment. But it’s not just Brexit, we are also seeing here the effects of the global economic slowdown on the UK economy.
Unfortunately, as pointed as by the BoE in its quarterly inflation report, the situation is expected to get worse before it gets better. The central bank forecast growth of just 1.3% in 2019 and that’s on the condition of an orderly Brexit.
Tomorrow Theresa May will make a speech to Parliament over Brexit ensuring pound volatility is here to stay for another session.
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