Asian markets advanced to fresh seven-month highs overnight and European bourses look set to open higher amid further signs of recovery in China. Layered on top is some more trade talk optimism as oil nears $70 per barrel.
China’s services PMI picked up to a 14-month high in March as both domestic and international demand improved. This is yet further evidence that stimulus policies by the Chinese government are starting to take affect and that fundamentals are showing signs of improvement. It will take more than one month’s worth of data to see whether the Chinese economy has turned a corner and is starting to stabilise. However, investors are starting to get optimistic that a recovery is setting in.
After a strong start to the week, which comes following a stellar first quarter, investors will turn their attention to the next catalysts which could decide direction. March payroll numbers and US – China trade will fall under the spotlight
Trade talks back in focus
Trade talks will regain focus on Wednesday when China’s Vice Premier Liu He, with a delegation of trade negotiators, head to Washington. Any positive headlines could offer stocks the next step up. Whilst traders are starting to look for more solid evidence that a trade deal between the two powers is achievable within the coming months, there is also a sense that investors are looking for any positive rhetoric to sustain the current rally.
ADP payroll figures to provide clues to NFP
Friday’s payroll figures will be an important catalyst for driving direction in stock markets. After February’s surprisingly weak headline figure, investors will want to see a more acceptable number of jobs created in March.
Today’s ADP (NASDAQ:ADP) private payroll release could provide some hints as to what we could expect on Friday. The expectation is for around 180,000 private sector jobs to have been created. This is roughly what we saw the previous month for February.
Other data which could attract the market’s attention is the ISM non-manufacturing release today. An impressive print for the US service sector, following a strong manufacturing reading earlier in the week could offer a solid floor for sentiment, keeping risk appetite elevated.
Pound advances on softer Brexit optimism
The pound was pushing higher versus the dollar in early trade on Wednesday, boosted by Theresa May’s promise of cross party talks to break the Brexit deadlock in Westminster. Joining forces with the opposition leader Jeremy Corbyn is likely to bring a softer version of Brexit, possibly with the UK staying in the customs union; a red line that Theresa May has previously refused to cross.
Theresa May joining forces with her political enemy shows the PM’s level of desperation to get a Brexit deal through. We could expect to see some resignations in the coming days from the Brexiteers in her cabinet, who will be more than a little irked by this new softer direction for Brexit.
Opening calls
FTSE to open 11 points higher at 7401
DAX to open 98 points higher at 11852
CAC to open 36 points higher at 5459