Global equities continue to dance to the tune of trade tension headlines. Despite starting the day in the red, the Dow closed higher overnight, after White House advisor Larry Kudlow sought to bring a glimmer of hope to prospects of deescalating trade tensions. His comments come following a more pessimistic tone from Trump earlier in the week.
Contradicting trade headlines are injecting volatility into the market ahead of the G20 meeting later this week. The markets are pinning their hopes on the summit and side-line meetings between President Xi and Trump, as the last opportunity this year to move trade talks forward.
Asian markets didn’t need to be told twice that Larry Kudlow considers a trade deal between the US and China an open possibility. Asian stocks powered higher as risk on dominated. Flows out of safe haven currency, the Japanese yen continued. The yen extended losses for a third straight session overnight. Meanwhile the dollar is proving to be the currency of choice.
Dollar close to 18 month high ahead of US GDP, Fed Powell speech
The greenback rallied overnight, hitting a high of 97.42, just shy of its 18-month peak reached early this month. The dollar was just easing back in early trade on Wednesday, as investors look towards US GDP data and a speech by Fed Chair Powell. Given signs of a global slowdown and extreme market volatility over the past few months, investors will be keen for a sense of the Fed’s hiking plans for next year.
Deescalating trade tension optimism which drove Wall Street and Asian markets higher, looks set to spill over into Europe. European bourses are pointing to a stronger start on Monday. A near 1% gain in oil will also offer significant support to energy stocks in general and oil majors on the FTSE.
BoE stress test results unveiled
Banks will be in focus across the session, as traders await the release of the BoE’s stress test results. After a second last minute change from the BoE, the results will now be released at 16:30 on Wednesday rather than 07:00 as planned. 2 changes to the release of the stress test results will naturally heighten anticipation surrounding the results.
With Brexit and very possibly a no deal Brexit looming on the horizon, people will be paying more attention to this stress test than previous ones.
Last year, for the first time all seven UK banks passed the stress test; investors will be hoping for a repeat performance. The Brexit shock scenario results will be of particular interest. As all banks passed the Brexit doomsday scenario last year and have also since boosted their balance sheets; the expectation is that they will pass it again. That said, RBS (LON:RBS) and Barclays (LON:BARC) performed poorly in recent European stress tests meaning investors will have them earmarked.
Brexit survival aside, the bottom line is that investors will be looking at the stress test results as an early indication of each bank’s ability to return capital to shareholders by ways of higher dividends and share buyback programmes.
Opening calls
FTSE to open 30 points higher at 7046
DAX to open 40 points higher at 11351
CAC to open 23 points higher at 5006