Wednesday should be a session of celebration – finally the US-China ‘phase one’ trade deal is set to be signed! Instead, while White House staff start topping up the inkwells, the insufficiencies of the agreement have put a dampener on proceedings.
Though not exactly a surprise – if it were the market reaction would have been far sharper – Steven Mnuchin’s confirmation that tariffs on $360 billion in Chinese goods will ‘stay in place until there is a Phase 2’ helped sour the atmosphere. That’s because the chances of a ‘phase 2’ agreement ever actually materialising feel rather slim given how tortuous the process was to reach the comparatively simple ‘phase one’ deal.
As mentioned, this wasn’t enough to send the Western indices spiralling, but rather caused a pale red hue to be cast over the European open. The FTSE lost a couple of points, while the DAX and CAC both drifted 0.1% lower. The Dow Jones, meanwhile, is currently set to open unchanged just above 28900.
What could change things for the FTSE, at least, is how the pound performs throughout the rest of the day. The Pound sterling has had a rough time of it since 2020 began, with Brexit realities, weak data and the related prospect of a potential rate cut all weighing heavy on its mind.
This morning presents the currency with a couple more tests, namely an appearance from Bank of England MPC member Michael Saunders, and the latest UK inflation reading. The latter is expected to hold at 1.5%, so any move above or below that number will likely dictate the pound’s direction.
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