The optimism that engulfed markets last week in relation to Brexit as well as the US-China trading relationship has been replaced by a less hopeful outlook. 

Europe

Earlier today we heard that China would like more talks before signing phase one of the US trade deal. The news caught some traders off guard as there was a feeling the portion of the agreement had been wrapped up. The update from Beijing has resurfaced some trade concerns, so dealers are trimming their positions in equities.

The Queen’s speech today provided a lot of political headlines, but traders are largely concerned about the possibility of the UK leaving the EU in an orderly fashion. Feelings were running high on Friday after it was announced that a ‘pathway’ to a deal had been mapped out. Concerns still remain about taking the UK out of the EU’s customs union in relation to Northern Ireland. The DUP are unlikely to back any proposal that treats Northern Ireland differently from Great Britain post Brexit. UK banks as well as homebuilders are in the red as the Brexit mood has become a little more uncertain.       

Thoma Bravo announced they would acquire Sophos Group in a deal this worth $3.8 billion. In addition to acquiring the cybersecurity firm, the private equity group plans to take Sophos private, which has sent the shares up 35%. Sophos has had a difficult time in 2019, as the group issued a profit warning in January, while in May the firm described the trading period as ‘challenging’. Sophos shares are currently trading at 577p, with the all-time high was above of 650p, so shares are not being snapped up at the low. 

Ashmore shares are little higher after the company posted a fractional increase in first-quarter assets-under-management. Net inflows were respectable at $2.4 billion, but they were largely offset by negative investment performance of $2.3 billion. The strength of the US dollar hurt equity markets as well as emerging market currency returns. The share price has enjoyed an impressive rally since December 2018, and while it holds above the 200-day moving average at 456p, the bullish run should continue. The 508p area might act as resistance.

Kepler Cheureux trimmed their price target for Aston Martin to 450p from 500p. The high-end car manufacturer has only been a publicly listed company for just over a year, and it has been a rough ride so far. The US-China trade spat as well as the uncertainty in Europe in relation to Brexit has impacted the group.   

US

Volatility on Wall Street is low as the US celebrates Columbus Day. The moves today are unlikely to be a true reflection of market sentiment. Stocks are mixed on the back of the news that China would like to hold further talks before signing up for first phase of the trade deal. The trade spat has been going on for over a year, and it seems like it will drag on for some time to come.

On Friday, Visa, Stripe and eBay announced they will not be taking part in Facebook’s cryptocurrency project, Libra. PayPal had previously withdrawn from the project. Regulators continue to pore over details of the proposal from Facebook, but as major players walk away from the planned scheme, it will work against the social media giant. 

Nike shares hit an all-time high today on the back of the Bank of America Merrill Lynch note, which upgraded the stock to neutral from underperform. The banking group said that apparel continues to be in demand, and the market for footwear below $100 has growth potential too. 

FX

GBP/USD is in the red as dealers are less hopeful that a deal will be struck between the UK and the EU. Sterling enjoyed a massive rally at the back end of last week due to optimism surrounding the Brexit talks, but now the Northern Ireland–customs union roadblock has popped up again. The possibility of the UK requesting an extension is still on the cards, which is why sterling hasn’t lost further ground.

EUR/USD is fractionally lower due to a broad rally in the US dollar index. Eurozone industrial production increased by 0.4% on a monthly basis in August, which was a sharp improvement from the 0.4% fall in September. The announcement had short-lived positive impact on the single currency.

Commodities

Gold has been given a lift by traders’ risk-off tactics. The jitters in relation to the US-China trade story has prompted dealers to seek out assets that are perceived to be lower risk, so gold is higher on the session. The gains in the metal haven’t been huge, but if the positive run continues it might target $1,500.     

WTI along with Brent crude have been hit hard by the latest development in the US-China trade story. The fact that China wants additional negotiations before committing to signing phase one, sends out a message of uncertainty, which has clobbered the oil market. The latest Chinese imports figures were dreadful, so when you add in extra trade uncertainty, it makes the outlook for oil even worse.

 

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