Europe To Extend Gains Despite Trump''s Military Threat

reopening optimism continues to drive markets higher, overshadowing cooling relations between US and China and growing unrest on US soil.

Charts (2)

European bourses are looking ahead to another positive start on Tuesday, extending gains from the previous session as reopening optimism continues to drive markets higher, overshadowing cooling relations between US and China and growing unrest on US soil.

US markets closed higher overnight, taking the benchmark to less than 10% from its all-time high, despite growing scenes of civil unrest following the death of George Floyd whilst being arrested by Minneapolis police. Until now, investors have been able to shrug off the growing unrest. However, US futures are pointing to a lower start after President Trump threatened to bring in the military to bring the protests under control.  

Signs trade deal could be under threat
US – China relations also remain in focus. Trump pleased the markets with no surprises in a key speech on Friday. However, two state owned enterprises have been instructed to halt purchases of US farm imports. This is the clearest sign yet that the hard-fought US – China trade deal could be under threat. Currently the markets are taking this risk in their stride. However, should tensions between the two powers escalate much further, fears that it will hamper the post coronavirus economic recovery could dominate and drag risk sentiment and stocks lower.

For now, investors are content focusing on the longer-term prospects of easing lockdown measures across the globe and the economic recovery. Data from China at the start of the week buoyed sentiment that a recovery was underway. Manufacturing data in the UK and the US also showed contractions in the sectors to be slowing, a trend which is expected to continue into this month.

Brexit in focus
Heading into the London open, the Pound is easing back from a monthly high versus the US Dollar reached in the previous session. Brexit rumours drove sterling higher with suggestions swirling that the UK could offer to compromise on UK fisheries and level playing field trade rules, if the EU agrees to back off from its maximise demands. With the last round of Brexit talks before the key June summit kicking off today, sterling could be in for a volatile week. 

The reality is that a no trade deal Brexit is very much on the table, as the UK is hurtling towards the end of the transition period without a free trade deal in place, spelling turmoil for businesses. The timing, with the coronavirus crisis couldn’t be worse. The last thing the UK needs will be trade barriers and a reduction in productivity as the economy attempts to recover from the damage that coronavirus crisis brought with it.

GBP/USD Chart

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