A de-escalation of trade tensions helped the Dow book gains of almost 200 points overnight. Optimism from a revamped NAFTA deal saw traders put risk firmly back on the table.
As we enter Q4 one of the biggest risks in the market has been dialled back (for now). That gives investors reason to buy into riskier assets.
Yet optimism from the US session failed to transfer over to Asian markets overnight. Relief from reduced trade risk faded relatively quickly. Investors are now focused on the impact that elevated trade tensions have had on global economies, namely China.
Manufacturing figures from China, Europe and the US showed signs of weakness in September. Weak data sent the Hang Seng 1.5% lower on Tuesday after it opened following a public holiday. Whilst some progress has been made in trade negotiations, noticeable damage has been done. A quick resolution to US – Sino trade tensions is essential to protect the global economy, where risks have begun to materialise. However, any deal between the two powers still looks a long way off. Chinese markets are closed across the week for a public holiday.
Declines on the open across Europe
European bourses are taking the lead from weakness in Asia overnight. Markets across Europe are pointing to a lower start on the open. On the FTSE, house builders will be particularly in focus as investors look towards Nationwide House price data and UK construction PMI. House prices are expected to have increased at an anaemic pace of 0.2% month on month in September, up from a -0.5% decline the previous month. Annually, price growth is expected to have slowed to 1.9%, down from 2%.
UK construction PMI to remain constant?
The construction PMI is expected to remain constant in September at 52.9, after falling heavily from a 14-month high of 55 in July. With Brexit uncertainty looming there is a good chance that we will see a return to the pattern of projects winding down with little new work to replace them. A surprise to the downside is not entirely out of the question with just weeks to go until we know more about the kind of Brexit facing the UK economy. The pound is trding marginally lower versus the dollar ahead of the reading.
Oil well supported at $85
Oil continues to hover around 4 year highs. Concerns over tighter supply ahead of the Iran embargo are keeping the bulls firmly in control. Iran supplies almost 3% of the world’s daily oil consumption, so any sanctions on Iran will hit the supply side of the equation, and hard. Supply is looking fragile and when you then throw in Venezuela’s declining output, the price looks well supported at $85 with $100 in sight.
Opening calls
FTSE to open 16 points lower at 7479
DAX to open 55 point lower at 12284
CAC to open 20 points lower at 5486