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Markets weary as Trump offers olive branch to Congress over shutdown

By The London Capital Group Team

News that Trump was reaching out to Congress to help end the partial government shutdown, provided some optimism to traders overnight. However, Trump’s olive branch was overshadowed by concerns over the health of the Chinese economy and a potential global economic slowdown, which weighed on sentiment at the start of 2019.

Fears over a slowdown in China, amid trade tensions with the US, have ramped up over the past few months. Data from China is unnerving investors and last night’s release was no different. The Chinese manufacturing pmi showed that activity was at its lowest since May 2017, indicating a contraction as it fell below the level of 50. An increasing amount of data is pointing to the Chinese economy losing steam and with new orders falling for the first time in 2 1/2 years, the outlook doesn’t look great either.

Safe Havens Shine

As traders digested another round of disappointing figures from China, risk off tones dominated. Stock markets across Asia fell, while known havens the yen and gold climbed higher again. The yen is up for the third straight week, whilst the prospects for gold appear to be rising. Gold was up 0.3% in early trade, hitting a peak of US$1285.4 as 2018’s year end rally continues into the new year. Gold is holding onto 6-month highs supported by the prospect of fewer Fed hikes and a softer dollar, concerns over slowing economic global growth and wild swings in the stock market.

UK Manufacturing PMI to Drag On GBP?

The pound put in a solid performance on the last day of trading in 2018, after a dismal year. With Theresa May’s Brexit deal set to be debated in Parliament next week and with the vote scheduled for the third week in January, Brexit cannot help but remain the key driving force for sterling.

UK Manufacturing pmi data could briefly drag trader’s attention away from Brexit headlines and towards the health of Britain’s economy just months before it is due to leave the EU. Manufacturing activity is expected to have ticked lower to 52.5 in January, down from 53.1 in December. The stock piling that we saw in December’s figures, which pulled manufacturing activity off a 27-month low, is expected to continue in January but to a slightly lesser extent. With the route of Brexit still undecided, firms are preparing for a no deal Brexit with emergency stock piles.

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