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China trade optimism continues to build

One year on from President Trump’s claim that trade wars are good and easy to win, investors seem optimistic that some form of accommodation between the US and China could well be within reach.

Reports that China could lower tariffs on US farm, auto and chemical products has seen Asia markets get the week off to a positive start. In response the US would roll back a good proportion of the recent tariff increases that it has imposed in the last 12 months.

This has helped push the Nikkei 225 up to its highest levels since December last year, while Chinese markets have also reached multi month highs, though these continued gains may have more to do with last week’s decision by MSCI to raise its China weighting on its emerging markets index over the course of the next few months, than any imminent prospect of a trade accord.

European markets have picked up on this positive vibe, opening higher with the DAX closing in on its 200 day MA and at its highest levels since October.

The FTSE100 on the other hand continues to underperform, probably not helped by last week’s gains in the value of the pound, as market optimism that we’ll see an article 50 extension push back the prospect of a “no deal” Brexit on four weeks’ time.

While this morning’s optimism is all well and good, it does beg the question as to how much is already baked in to the price, given that most of the rebound this year has been predicated in a dialling down of trade tensions.

Daily Mail Trust shares are sharply higher after announcing that it will return £200m to shareholders in respect of its stake in Euromoney.  

Ted Baker shares are sharply lower in the aftermath of this morning’s news that CEO Ray Kelvin has stepped down, 32 years after founding the business. Recent events around reports of harassment appear to have prompted this decision, as the inquiry into Ted Baker’s policies and procedures continues around the handling of complaints.

The US dollar is slightly softer after weekend comments from President Trump where he criticised Fed policies, which he says helps put upward pressure on the greenback.

The euro has continued its slide from last weeks’ three week high ahead of this week’s European Central Bank rate decision, where speculation is increasing that we might see the announcement of a TLTRO programme.  This might be somewhat premature as it would be tantamount to an admission that the decision to end QE at the end of last year was a mistake.

US markets look set to build on last week’s gains, having seen the S&P500 close above the 2,800 level for the first time since November. This has prompted speculation that we could see further gains towards last years all time peaks, however this may be a little premature given that we are still below the November peaks of 2,817, and this could prove to be a significant obstacle.

On the earnings front we have the latest Q4 numbers from data services and software provider Salesforce with consensus estimates of sales of $3.56bn, an increase of 26% on the year before driven by increased sales in cloud services, as well as the continued integration of Mulesoft into its operations. Expectations are for profits to come in at $0.55c a share, down from Q3’s $0.61c a share. Guidance for the upcoming quarter is expected to come in at $0.61c a share on sales of $3.39bn. With the shares already at all-time highs there is an argument that a lot of the good news may well already in the price, which means we could be susceptible to a pullback.

Amazon also announced over the weekend that it plans to open dozens of US grocery stores which could well be a harbinger of what might happen here in the UK, if it proves to be successful.

Having launched its Fresh range here in the UK back in 2016, the reports that Amazon is looking to expand into physical stores for food is likely to send a chill not only through the US grocery market, with shares in Kroger’s, Publix and other US food retailers likely to be in focus today, but will force UK food retailers to up their game as well.

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