Global financial markets remain on the front foot at the start of this weeks trading as investor sentiment increases on the back of a more dovish Fed and positive news on the trade front between China and the US. Equity indices in Asia look once again to open the day nicely in the black after the US markets had a strong day and the dollar dropped off again, hitting its lowest level since October as haven flows moved in the opposite direction. Comments from the Fed on Friday are being seen as the main driver behind the last couple of days strong moves and these have been reinforced by stimulus moves in China and further comments overnight that the US team feels it can reach a reasonable deal with China, which given recent history has been well received by the market. Oil continued its recent move back north as over supply concerns continue to recede with the WTI trading back towards $50/b.
Investors are happy to go with the positive trend in the current environment but remain wary of sharp downside reactions given the moves we’ve seen over the last few weeks and months. The change in message from the Fed should add underlying support as we move through Q1 but traders are still very much aware that the various geo-political factors that have been so prevalent in influencing market moves over the last twelve months are still relevant and any change in the status quo could lead to significant corrections. The US-China trade issue has probably been the most dominant factor across global markets and there appears to be positive steps made in China at the moment but investors will remain sceptical until the ink is dry on any deal. Brexit is set continue to dominate moves in the UK and Europe and expect headlines to come thick and fast as the week progresses with the UK parliament back after its Christmas break with the market expecting to hear on Wednesday when the much anticipated vote on Theresa May’s deal will take place.
Looking ahead to today’s trading and the market looks set to continue to trade in line with investor sentiment with little in the way of fundamental economic data releases scheduled. We have Australian Trade Balance data due early in the day but expect moves in the currency to continue to be influenced more strongly by investor sentiment, trade discussions in China will continue with traders closely monitoring progress there as the Asian session progresses. It’s quiet on the data front through the London session but focus will shift to Canada on the US open as they also produce their latest Trade Balance data.