Stocks on Wall Street rose on Tuesday and Asian markers put in a mixed performance as investors were unable to shake off lingering fears that the economy is slowing. Focus remains on long term US treasury yields which inched higher, although yield curves continue to be inverted.
For now the extreme nervousness that the inverted yield curve brought has died down, but it has by no means disappeared. Weak data is hard to ignore, and this is being weighed up against a more accommodative approach from central banks.
Yesterday we saw US home building numbers were worse than forecast, and consumer confidence fell unexpectedly. The Fed has started a dovish shift which could have further to go. CME Fed Funds futures now suggest that there is a 67% probability of a rate cut by the end of the year.
Brexit update
The pound was slipping lower ahead of Parliaments indicative votes in the House of Commons this afternoon. Potential scenarios are ranging from the cancellation of Brexit to no deal Brexit. There is still a possibility that Theresa May will attempt to put her deal back to Parliament for a third meaningful vote after being defeated twice before. With Jacob Ress-Mogg, Eurosceptic and leader of the pro-Brexit European Research Group now publicly supporting Theresa May’s deal the arithmetic of votes in Parliament will have changed. Changed sufficient to get the deal through? This remains to be seen. At these levels in the pound, currency traders are still optimistic that a no deal will be avoided.
Dovish Central bankers
The New Zealand dollar tumbled overnight as the Reserve Bank of New Zealand doubled down of dovish rhetoric. The central bank kept the official cash rate unchanged, as expected. However, their straight out admission that the next move will be a rate cut caught the market by surprise, sending the kiwi dollar down 1.6%.
Eyes will now turn to the ECB with Mario Draghi taking to the stage this morning. The euro is trading lower, extending gains for a fifth consecutive session ahead of what could be another display of caution from the ECB President when he speaks in Frankfurt.
Oil extends gains
Energy stocks could offer support to bourses in trading this morning. After rallying 1.8% in the previous session, oil is adding to those gains in early trade. Tighter supply continues to support the price of oil, whilst demand concerns are taking a back seat. Confirmation from Russia’s oil minister that Russia was on track to meet the output cuts agreed with OPEC later this month plus no power at Venezuela’s main export port are factors supporting oil at its current level and could help push the price towards $61.00.
Opening calls
FTSE to open 29 points higher at 7225
DAX to open 47 points higher at 11466
CAC to open 12 points higher at 5319
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