After heavy falls on Wall Street overnight, Asian markets pared earlier losses, but were still on track for a third week of declines as investors remain focused on the US – China trade dispute. European and US futures are pointing to a positive start after the opening bell.
Risk aversion has steadied, at least for now, on President Trump’s remarks that Huawei could even form part of a US – Sino trade deal. The fact that Trump is still talking about a trade agreement is offering some optimism to the markets. Traders have been focused on the damage to the global economy that a prolonged trade war could cause, so a break from the bad news is cautiously lifting sentiment.
Oil rebounds
Oil rallied 1% in early trade on Friday, supported by ongoing OPEC cuts and tensions in the Middle East. Yet the black stuff is well of yesterday's highs amid increasing US inventories and after trade jitters hit future demand expectations. Oil is on track for its biggest weekly loss so far this year, after shedding 5% in the previous session. Unexpectedly weak US manufacturing data fanned existing nerves over global demand pulling WTI crude below $60 and Brent sub $70.
Prior to this week supply concerns had dominated oil prices whilst demand took a back seat. This dynamic is now changing, and the price of oil has adjusted accordingly. As the trade dispute ramps up, fears of the health of the global economy have increased significantly. Without a resolution to the ongoing trade dispute quickly, which now looks very unlikely, oil could struggle to push higher. We expect rallies in oil to be short lived.
May to set out departure
The pound was holding steady at support at $1.2660 after falling another 0.5% across the week so far. Volatility in the pound could spike again as Theresa May is set to announce her timetable for her resignation as Prime Minister and leader of the Conservatives. A leadership contest is due to start June 10 and could last around 6 weeks. Her successor will define the course of Brexit. With Boris Johnson who favours a quick sharp Brexit favourite to win traders are struggling to find reasons to buy into the pound in any meaningful way right now. The overall negative trend for sterling is expected to remain for some time yet.
US durable goods to hit the dollar?
The dollar is subdued in early trade on Friday after heavy falls in the previous session. Following surprisingly weak US manufacturing pmi in the previous session, investors will now look ahead to today’s US durable goods data for further clue on the health of the US economy. Analysts are expecting durable goods orders to have declined -2% in April, down from 2.6% the previous month. A weak reading here could see investors pull risk off the table heading into the long US & UK holiday weekend.
Opening calls
FTSE to open 21 points higher at 7252
DAX to open 53 points higher at 12005
CAC to open 22 point higher at 5303
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