Global stock markets drifted lower over the course of yesterdays trading day as uncertainties across the financial world increased. Robert Lighthizer comments that the US is pushing for significant structural changes in China pulled back the recent increase in expectations for a progressive trade deal between the two super powers. This added to further concerns for investors on geo-political issues especially with the increased tensions and military action between India and Pakistan as well as more domestic issues for President Trump. The dollar had a mixed day and once again the pound drove higher on increased expectations of a Brexit delay, cable now trading above 1.3300. Oil has nearly regained all it’s losses from Monday with WTI back to $57/b and Brent above $66/ once again.
The pound has surged over 4.5% against the greenback and 3.5% against the Euro in the last two weeks as prospects of a Brexit delay have increased with the March 29 deadline fast approaching. The political machinations continue in both London and Brussels and investors hope that there will be some sort of clarity in the next couple of weeks. The Labour party have now changed tack and are backing a second referendum but the more likely outcome seems to be an extension of the deadline allowing both sides of the channel to continue negotiations. The EU is pushing for a lengthy delay and this probably reflects the fact that the economic data out of Europe has been very poor in recent months and political tensions are rising in member states. Investors may now question whether the dynamic has changed and does the EU now need the UK more than UK needs the EU and of course how would this will affect the way forward. The push and pull factors for sterling seem set for the short term in that delays and soft Brexit options will lead to strength with a hard deal Brexit leading to significant pull backs. What does seem certain is that the pound will see more volatility as the political battle heats up and the current deadline approaches.
Looking ahead to todays trading sessions and initial focus in Asia will be on the antipodes with Business Confidence data due out in New Zealand and Private Capital Expenditure numbers due in Australia, these are swiftly followed by PMI numbers out of China. It’s relatively quiet in the London session with German CPI numbers probably the pick of a raft of second tier data but the US session open with a major release in the form of the latest US Advance GDP data followed later on by the Chicago PMI numbers. Expect sentiment to continue to dominate market direction but don’t discount the influence of some quite significant fundamental numbers today.