Markets Rally As U.S.-China Tensions Ease
This morning, there has been marked improvement in sentiment amongst traders with stocks rallying following some soothing rhetoric concerning the recent trade tensions from Chinese president Xi overnight. The FTSE 100 has risen to its highest level in a month as European markets have reacted positively to the latest developments after Xi took measured steps to de-escalate the situation during a key speech on globalisation. Xi cautioned against a cold war mentality and stated the China should push for free trade and uphold a multilateral trading system.
Rising tensions on trade between the two largest economies in the world have weighed on markets in recent weeks but it should be remembered that he implementation of tariffs is yet to be finalised, and the comments from Xi seem to suggest that he is keen to avoid any further escalation.
Triple threat remains for stocks
Whilst Xi’s comments are no doubt pleasing and provide timely evidence of his knowledge that a trade war is in no one’s best interests, there remains three additional threats to the recent risk-on move.
Firstly, US stocks saw a something of a reversal yesterday after a strong move to the upside was hit with some late selling on reports that the FBI had raided the offices and home of his personal lawyer Michael Cohen. The raid came as part of a “referral” from Special Counsel Robert Mueller who is investigating suspected Russian meddling in the 2016 election and this story threatens to erupt once more.
In addition, US sanctions on Russia saw affected shares plummet with the MOEX dropping over 10% as billions were wiped off the market in the largest decline since 2014 - around the time of the Crimea annexation.
The third and final threat at present is Syria, with tensions in the middle east rising after the alleged chemical attack over the weekend. Trump has promised a “forceful” US response with the situation also adding further to the US-Russian tensions seen at present.
Whilst all of these potential threats will no doubt be playing on traders minds, they have, for now at least, been usurped by Xi’s comments and the notable improvement in sentiment could well see a push higher going forward.
Pound hits highest level of the month
Sterling has moved higher after some hawkish comments from BoE member Mccafferty in which he cautioned fellow rate-setters against dallying when it comes to further tightening monetary policy. Mccafferty was one of two dissenters who called for higher rates at the last meeting when the bank decided to keep its policy unchanged and his recent comments have pushed the GBP/USD rate to its highest level in more than a fortnight. With the bank expected to raise rates next month, remarks from the voting members will take on a greater importance in the coming weeks with the previous hike in November - the first such increase in more than a decade - being widely telegraphed in advance.