Global trade tensions melted away a little yesterday which lifted equity markets around the world.
The comments from Wilbur Ross, US commerce secretary were welcomed in Europe as well as the US. Mr Ross claimed that ‘very shortly’ the government will issue licences to US firms seeking to do business with Huawei. The tech company in question was at the centre of concern for the Trump administration on the ground of national security. So a thawing of the relations acted as a boost to equities.
Mr Ross also said it was possible that tariffs might not be levied on EU vehicle imports. The update did a lot to ease dealer’s nerves about a possible trade spat between the US and the EU. During the course of Trump’s trade dispute with China, he suggested he could turn up the heat on Brussels, but remarks yesterday helped chip away at some of those fears.
The DAX hit a level last seen in June 2018, while the CAC 40 reached a 12 year high. Gains were racked up in London too. Over in the US, the Dow Jones, S&P 500 plus the NASDAQ 100 all posted all-time highs. It is fair to say it was truly a global equity rally as the trade story played out on both sides of the Atlantic. The oil market was dragged higher the same reasons.
The bullish moves came amid subdued economic reports. Spanish manufacturing dropped to its lowest level since 2013. The Italian and the German manufacturing sectors are still in contraction territory, while the French survey of manufacturing showed minimal growth. This month the ECB will restart start its government bond buying scheme, and but it might struggle to revamp the euro-area economy as it can’t carry on quantitative easing forever.
US factory orders dropped by 0.6% in September, which undershot the -0.5% forecast. The update was the sharpest decline in over three years, so is understandable that some people still have small concerns about the health of the US economy. Interest rates were cut three times in the past four months, so hopefully those cuts will start to take effect. The downbeat reports shouldn’t be ignored, but the positive trade headlines are at the forefront of traders’ minds.
The Caixin survey of Chinese services came in 51.1, while economist were expecting 51.5, and keep in mind the September reading was 51.3. It was the slowest rate of expansion in eight months. Stocks in Japan as well as China traded higher amid trade optimism. The RBA kept rates on hold, meeting forecasts.
At 9.30am (UK time) the UK services PMI will be posted and economists are expecting a reading of 49.6. The update will be closely watched as the services sector in the UK accounts for roughly 75% of economic output.
The services sector in the US will be in focus too. The final reading of the services PMI report is tipped to be 51. The ISM non-manufacturing is expected to be 53.5, which would be an improvement from the 52.6 posted in September – which was a three year low.
The US JOLTS report will be announced at 3pm (UK time). Traders are expecting a reading of 7.21 million.
EUR/USD – has been driving higher since the start of the month, and a break above 1.1200 might put 1.1249 on the radar. A move lower might bring the 50-day moving average at 1.1039 into play.
GBP/USD – remains in the recent aggressive upward trend and a sizeable break above the 1.3000 area might bring 1.3178 into play. A move lower might put the 200-day moving average at 1.2711 on the radar.
EUR/GBP – is still in the bearish trend, and a break below 0.8575 could pave the way for 0.8471 to be targeted. If it manages to hold above the 0.8600 mark, it might retest 0.8786.
USD/JPY – while it holds above the 50-day moving average at 107.69 it could target 109.31. A move back below the 50-day moving average might bring 106.48 into play.
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