The markets have started the week on the back foot after China pulled out of scheduled talks with the US just hours before the next round of tit for tat tariffs are due to be introduced. The market had mainly shrugged off the on going global trade concerns for the majority of last week and we’d seen a strong move to the topside for risk sentiment trades and equities in general, however, with the latest move from China we might see a tempering of that feel good factor for the first few sessions of this week as investor caution returns. This move is not entirely unexpected as the Chinese had telegraphed that they were not prepared to return to the negotiating table while the US was pushing ahead with it’s aggressive tariff implementation, however the timing is interesting as they waited a few days until just before the tariff deadline before confirming this move.
There’s a strong central bank focus to the week ahead with a plethora of major central bankers due to speak and of course the latest Federal Reserve meeting where they are fully expected to raise rates by 25 basis points. Investors will be monitoring the statement and press conference very closely and with expectation increasing for another hike before the end of the year and treasury yields stopping 3%, the risk trade is probably of a slightly more cautious Fed outlook in light of the recent increase in global trade concern leading to a more dovish outlook.
Asian equities are set to open in the red although we may have a more muted session today with both Japan and China on holiday. The dollar had experienced a couple of tough weeks as risk sentiment rose but we may see a return to the topside as it’s safe haven aspect appeals to traders, with the emerging markets, Aussie and Yen a focus first up in the Asian session.
Looking ahead to the rest of today’s trading sessions and it’s relatively light in terms of economic data releases but whilst global trade concerns should dominate the Asian session, the focus will move closer to home as Europe opens. German IFO data is due tonight and we are scheduled to hear from ECB President Draghi as he testifies to the European Parliament’s Economic and Monetary Affairs Committee. This should keep Euro traders on their toes as we move through the session.
Also, the continuing Brexit saga will remain a focus for sterling traders, the pound took a heavy hit on Friday and the recent uptrend broke as fears increased that a deal will not be concluded by November. Expect further volatility on the subject and in the markets as we move closer to a deal with a variety of interested parties all looking to have their say. The general market feel is that we will see a deal concluded at some point as this is accepted to be beneficial to both sides and this should support the pound in the long term.
Overall, we expect to see sentiment continue to drive the markets as we move forward this week, although with the strong central bank focus underlying fundamental changes may come through that will give longer term players some decisions to make.