To say there are a lot of market moving events going on would be an understatement There is data flowing in from all directions; corporate updates are still coming in thick and fast on both sides of the Atlantic, three central bank meetings this week with the BoE next in line and further tensions emerging in the unfolding trade wars.
With so many influencing factors, building a clear narrative is far from simple. From where we stand a summer lull still looks a long way off, if it will happen at all.
No surprises from the Fed
Overnight the Fed, as expected kept rates on hold. The expectation was for a slightly more hawkish tone from the Fed in their statement and that was exactly what was given. No surprises and talk of a strong economy has cemented expectations of a rate rise in September, with a second hike before the year is out, being priced in at 64%. Following Fed’s bullish assessment on the economy, 10 year treasury yields remained elevated at 3% and the dollar index closed 0.2% higher.
Trade war steps up a notch
An announcement by the White House that Trump is considering increasing tariffs to 25% on $200 million worth of Chinese imports successfully dampened sentiment, limiting post-Fed moves. This is a clear sign that trade tensions are escalating rather than easing up. The Dow and the S&P closed the session lower on weakened sentiment; however, the Nasdaq closed 0.5% higher, thanks to a 5% rally in Apple (NASDAQ:AAPL) spreading through the sector and reversing the recent tech rout.
With fears rising that Trump’s trade war with China is only just beginning, investors are taking risk off the table once more. Asian markets are a sea of red and European bourses are pointing to a softer open. Safe haven Japanese yen is also better bid as trade fears overshadow central bank divergences.
Pound dips ahead of BoE decision
The pound was seen edging lower overnight as investors look ahead to the BoE monetary policy decision later this morning.
A 25 bps increase to 0.75% is broadly expected taking the rate over 0.5% for the first time in a decade. With the markets almost completely pricing in the hike, the vote split, and forward guidance will be closely scrutinised.
A close vote and a dovish Carney could see the pound move through $1.3090 towards $1.3045. Meanwhile a more convincing vote split could see the pound target $1.32, whether such a rally would have any staying power would depend on Friday’s PMI figures and Brexit headlines.
Opening calls
FTSE to open 33 points lower at 7619
DAX to open 52 points lower at 12685
CAC to open 22 points lower at 5476
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