After a rough start Wall Street staged a spectacular turnaround, its most impressive in 2 months. An apparent pulling back from the brink by the White House following China’s announcement of $50 billion worth of trade tariffs on US products eased growing concerns of a full-on Sino - US trade war. As a result, the US session saw a descent unwinding of the early dominant risk off trade, sending equity indices higher, gold and treasuries lower, whilst the dollar held its ground versus the yen and the Swiss franc. However, agricultural commodities such as soybeans fell sharply and remain heavily out of favour, given the potential hit they could receive from the pending tariffs.
The Dow rallied 700 points from its low of the session, whilst the S&P reversed a loss-1.6% to finish 1.2% higher and crucially above its 200-day moving average. The Nasdaq closed 1.4% higher, although Facebook (NASDAQ:FB) was once again out of favour amid suggestions that over 80 million could have been affected by the Cambridge Analytica scandal.
Rowing back on trade tariffs?
Investors showed remarkable levels of optimism given the escalation of tension from China regarding the trade war in the previous session. The markets clearly believe right now that China’s tit for tat response will act as a deterrent for Trump, with both parties expected to focus on how to row back with the least friction possible, as time still exists to de-escalate the tensions before tariffs are due to come into force. However, a reality still exists that Trump could be infuriated with China’s response cornering the hot-headed President to push for broader, deeper tariffs, escalating tensions further. Whilst so far, this doesn’t appear to be the case, given how unpredictable Trump can be, expect the unexpected is fast becoming a suitable mantra.
Following the mighty reversal in the US, Asia traded firmly higher overnight and Europe is facing a strong start on the open as voltality continues to be the hot topic for the year so far.
UK Service Sector PMI
A couple of economic data points in the European session are likely to catch the eye of traders. First up the UK service sector PMI. Service sector activity in the UK is expected to have slowed slightly to 54 in March, down from 54.5 in February. Given the dominance of the UK service sector in the UK economy and the significant slowdown in the construction PMI in the previous session, the market is expected to be particularly sensitive to today’s reading. A surprise to the downside is expected to have a large negative impact on the pound, potentially pulling it back below $1.40 as investors reassess the odds of a May BoE rate hike.
Eurozone Retail Sales
Eurozone retail sales could offer further clarification to the mixed inflation data for the bloc in the previous session. Whilst headline inflation increased to 1.4% as anticipated, core inflation failed to hit the 1.1% forecast, falling short at 1%. On an annual basis, retail sales are forecast to remain steady at 2.3%. Meanwhile, retail sales are forecast to pick up month on month by 0.6% in February, up from a 0.1% decline in January. An encouraging read could help boost optimism that inflation is starting to make the right noises in the eurozone, even if very faintly. This could push EUR/USD back above $1.23 to wards $1.2335, before attacking $1.2370.
Opening calls
FTSE to open 100 points higher at 7134
DAX to open 176 points higher at 12133
CAC to open 75 points higher at 5216