Equity Rally Pauses As Investors Await More Evidence

Global equities ended a four day rally on Thursday as reality set in over what was actually achieved in the US – China trade talks, and as the US government shutdown rattles on. The FTSE was faring better than its European counterparts paring losses, thanks in part to the Brexit weakened pound.

Equities across the globe were on the back foot as investors reflected on the recent US – Sino trade talks. Despite the one-day extension to negotiations and Trump tweeting that the talks went “very well” there has been very little else for traders to go on. Without solid evidence or action, the rally was never going to be sustainable. Investors are preferring to hang back and see what the next chapter looks like before taking this rally further.

Pound stumbles on Brexit uncertainty
Following yesterday’s sell off the dollar is clawing back lost ground, particularly against its European peers. The pound was trading 0.5% lower versus the dollar as Brexit uncertainties continue to dominate amid the airing of the Brexit agreement in Parliament. This combined with signs of an economic slowdown as retailers failed to increase their sales this Christmas from a year earlier has put the bears firmly in control.

Tesco jumps on strong sales
Retailers are a central focus this week as the give the market an insight as to how they performed over the all-important Christmas period. Tesco bucked the trend in the sector surging 2% after a 2.2% rise in like for like sales. Tesco is a clear winner for 2018, but with price slashing back in play investors will be watching Britain’s biggest retailer closely. 
Eurozone risks balanced to the downside 

The euro was on the back foot against the dollar following the release of the ECB monetary policy minutes. Whilst ECB Draghi stated that risks surrounding growth in the region were broadly balanced, he also commented that the balance of risks was moving to the downside. With ECB policymakers believing that risks could persist in the eurozone, the minutes were far from encouraging.

Powell to talk the dollar down?
Investors will now turn their attention to Federal Chair Powell, who is due to give a speech this afternoon. Jerome Powell’s more dovish tone, eased market jitters last week boosting risk sentiment and sending stocks higher. The minutes from the FOMC meeting had the same effect. However, the prospect of a more cautious Fed is weighing on demand for the dollar and is the principal reason behind recent dollar weakness. A dovish Powell could see the dollar give up today’s gains and head southwards once again.