Just last week even the mere thought of a Santa rally was almost completely out of the question. Thanks to a trade truce served up over dinner between Trump and President Xi Jinping, risk is being placed firmly back on the table, at least for now.
Risk sentiment received a strong boost as President Trump agreed to hold fire on raising tariffs for the next 90 days, whilst Mr XI agreed to up purchases from the US of industrial, energy and agricultural goods. Both countries intend to reach a broader trade agreement within the deadline of 90 days.
This ceasefire served up over Malbec and steak was more than enough to calm market jitters. Asian equities have charged higher overnight and futures across the globe are pointing to a risk on session. This hiatus is being presented as a win-win by both sides, however, whether the Latin love will last or whether this proves to be a fleeting fling remains to be seen. Right now, the market is willing to focus on the positives, but the fact of the matter is the thornier issues such as technology transfer, have not been resolved.
The knee-jerk reaction has been a strong bounce higher as investors see the glass half full. The rally could ease as investors start to look around for further information and as it becomes clear that underlying issues will prove extremely challenging to resolve. So, whilst this is a surprise to the upside against a low bar, the negotiation road ahead will be bumpy.
Weaker dollar looks towards Fed Powell
In line with risk on sentiment, equities are moving higher and the dollar has dropped lower overnight, although moving higher versus the yen. The greenback could remain under pressure as investors look towards Fed Chair Powell testifying before Congress on Thursday. A more cautious Fed weighed on the dollar last week and investors will be nervous of a repeat performance.
Oil lifts after dismal November
Improved US-Sino relations and a softer dollar is providing optimal conditions for commodities. Oil traders are also focusing heavily on the OPEC meeting this week where expectations are rising for a cut in production. This comes after oil posted its worst monthly loss in November for more than 10 years, shedding 20% of its values, as supply-demand concerns weighed on the market.
Brexit turmoil continues
This week looks set to be the toughest yet for Theresa May as all things Brexit come to a head before next week’s Parliamentary vote. Theresa May is expected to come under mounting pressure today to publish the government’s legal advice on Brexit; a move she had sidestepped so far. The involvement of the DUP in increasing the pressure on Theresa May will be yet another example of her ailing power as we head towards next week’s vote. The pound is trading broadly lower in early trade, albeit stronger than the softer dollar.