The global rally in equities continued through to the US session with Wall Street closing higher. The Dow finished up over 200 points as investors expressed elation with the outcome of the meeting between Trump and President Xi, and the temporary trade truce. However, the euphoria was wearing thin by the end of the US session, with the Dow ending some 200 points off its session high. Those looking hard enough for some indication of caution would have also seen the slight dip in Treasury yields below 3%.
Asian markets fell overnight as the trade truce relief rally ran out of steam. Investors questioning whether the US and China will be capable of reaching a trade deal within the 90-day truce period hit sentiment, dragging riskier assets lower.
The initial relief rally was never going to last, investors need more detail now in order for that risk on sentiment to survive. So far, that detail has not been coming through and investors have more questions than answers. Once again, we find ourselves on that familiar territory of trading sentiment fluctuations stemming from trade war headlines.
Oil Extends Gain on Supply Cut Hopes
Oil prices continued to rally in early trade. After charging over 5% higher in the previous session, oil was up a further 0.7%. Trade truce news and hopes of a supply cut are boosting oil. With just days to go until the next OPEC meeting, traders are growing increasingly certain that Saudi Arabia and Russia will deliver a substantial supply cut in an attempt to bring the supply glut under control.
This will be the last OPEC meeting for Qatar after deciding to leave the cartel. Whilst Qatar is one of the smallest producers in OPEC, the move brings a level of uncertainty at a highly critical time.
Pound Higher vs. Dollar Ahead of Carney’s Appearance
All things Brexit will continue to dominate for pound traders. The pound was trading steadily higher versus the dollar in early trade, however, this is more of a dollar weakness story rather than any noticeable strength in sterling.
Today, BoE Governor Mark Carney & Co. will take the hot seat before the Treasury select committee to discuss the central bank’s analysis of Brexit. In all of Mark Carney’s recent appearances, he has given stark warnings over the impact of Brexit and particularly a no deal Brexit on the British economy. The pound is looking battered after falling versus the dollar for 4 straight sessions and we don’t expect an uplifting tone from Carney. Whilst the information he gives is not expected to be new, it is almost certainly going to make an already jittery market more nervous.
Aside from Mark Carney, pound traders could glimpse towards construction PMI. This is forecast to slip lightly in November to 52.5, down from 51.5.