Talk of a US-China trade deal sent shares higher across Asia and much of Europe on Monday, although the FTSE is struggling as miners, impacted by the subsequent drop in the gold price, are weighing on the blue chip index. Shares in London are marginally in the red this morning, while the Dax and Cac have fought back from an early decline to push into the green. It’s a little lacklustre in Europe compared with Asia and what New York futures are showing, however. The FTSE had an incredible run last week, so traders might be tempering their spirits this morning. Overnight, it was a sea of green in Eastern markets, with the Hang Seng and Shanghai Composite both rising more than 1 per cent, while the Topix, still buoyed by the new government in Tokyo, rose 1.7 per cent. Futures for New York show the S&P 500 opening 0.8 per cent higher, while the tech-heavy Nasdaq, given Nvidia’s potential win over any trade deal, could open 1.2 per cent higher.
So, what is in the trade deal? Is there a trade deal? No one knows. All that has happened is that China said the two governments have reached an initial consensus on a range of industries, but more importantly, China would defer rare earth materials controls. The US’s 100 per cent tariff on all Chinese imports is suspended, for now. We all know how volatile this relationship is, but it’s safe to say this is the highest level of positivity from the relevant departments, indicating they’re making progress.
A trade war solution was probably not something traders were looking to factor in this already busy week, hence why there’s been an eager reaction early doors. You’d expect this to peter out soon, or at least until some more details are released and it looks more likely that US President Donald Trump doesn’t just throw everything out the window because he wants to. There are plenty of other things to be looking at that have a more immediate impact on share prices, although tariffs are of course more important in the long run.
First, we have the Federal Reserve meeting on Wednesday, which will likely see another 25 basis point cut to the Fed Funds Rate, much to Trump’s delight. Last time around, the Fed left its unemployment expectations unchanged this year, lowered them for the next two years, revised growth higher for the next three years and revised inflation upwards for next year, and still cut rates. And is doing so again. The market will happily play along with this for now, but at some point, the economic fundamentals will kick in, and investors need to think twice about what they’re dealing with, which is bad central banking. But for now, the shares keep rising, and so do earnings.
Speaking of earnings, another big week for New York, with the majority of the Magnificent Seven reporting quarterly updates. Could see some volatility in this regard, but with the Fed’s mood leading the way higher, it would take a negative surprise to really send things down. This is never out of the question, but it isn’t really the vibe at the moment.
It’s quieter in London this week, but there’s plenty of other macro and central bank news coming; you’d expect most of the eyes to be on Wall Street and the Fed. But for everything else you need to know, click here
By Taha Lokhandwala