European markets are set to finish higher today after Chinese president Xi Jinping said he is willing to open up the Chinese economy even further. 

Europe

The remarks were made overnight at the Bo’ao forum. Traders are taking it as a sign there won’t be a full-blown trade war between the US and China, and they are snapping up stocks.

Mining companies are clawing back some of yesterday’s lost ground. The message out of China is towards a more open and liberal mindset in terms of international trade. The second-largest economy in the world is a major importer of raw materials, and should they commit to their pledge to lower trade barriers, it is likely to benefit companies like BHP Billiton, Rio Tinto and Antofagasta

Evraz shares are 1% higher today as the company rebounds from the double-digit decline yesterday on the back of the US sanctions on Russia. Washington decided to impose sanctions on Russia for meddling in the 2016 presidential elections. Whenever tensions regarding Russia rise, Evraz often takes a hit as it is exposed to the country.

Glencore is also experiencing a lift on the back of the wider mining sector bounce. The commodity company clarified its relationship with Rusal – the Russian aluminium producer. Glencore CEO, Ivan Glasenberg, resigned as a director of Rusal, and the London-listed mining titan publicly stated it has a number of contracts with the Russian business. Given the current environment, Glencore is ‘committed to complying with all applicable sanctions’ on Russian companies.

US

The major US indices are higher today as the fears over a potential trade have waned a little. The remark from China’s leader Xi Jinping indicate the country isn’t gearing up for a trade war with the US; in fact, it suggests the opposite. Financial markets prefer more open and less regulated economies, and if the Chinese premier is serious about lowering trade barriers, it is likely to boost investment sentiment.

US PPI in March jumped to 3% – its joint highest level in over four years. Economists were expecting a reading of 2.9%, and the February reading was 2.8%. The core reading ticked up to 2.7% from 2.5%. The figures suggest demand is strong at the factory end, which is likely to trickle down to the end consumer in the form of higher inflation. A tick up in CPI down the line could put pressure on the Federal Reserve to keeping hiking interest rates.

FX

EUR/USD was nudged higher after Ewald Nowotny of the European Central Bank stated the deposit rate could be lifted from -0.4% to -0.2%, to lay the groundwork for reigning in the loose monetary policy. Mr Nowotny stated the bond buying scheme will end this year, but he feels it is too soon to begin increasing eurozone interest rates. The update gave traders a reason to buy the euro, and put pressure on the US dollar.

GBP/USD is in demand on account of the comments from Bank of England member Ian McCafferty, who stated the central bank ‘shouldn’t dally’ over the next rate hike. Mr McCafferty has a hawkish track record, and believes the low unemployment rate will lead to firms offering higher salaries in order to attract staff, and that will add to wage inflation. The broad decline in the US dollar is assisting the pound too.

Commodities

Gold traded north of $1340 for the first time in nearly a week as the dip in the US dollar helped the metal. There continues to be a strong inverse relationship between the two markets and gold traders are taking their cues from the US dollar. The metal would need to clear the $1355 area in order to snap out of the range that it has been in recently.

WTI and Brent Crude oil are driving higher this afternoon on the back of China’s comments. In light of the update from President Xi Jinping, traders are more optimistic about the state of the global economy, and less worried about the possibility of a trade war. China is an enormous importer of energy, and the signs they are willing to further liberate their economy bodes well for the oil market.

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