Global Markets Take the Lead from a Softer US Session

European markets are seen opening lower on Wednesday, following the lead of the US and Asia, which saw softer sessions, with the Nikkei slumping almost 2%.

European markets are seen opening lower on Wednesday, following the lead of the US and Asia, which saw softer sessions, with the Nikkei slumping almost 2%. 

The Dow, S&P and Nasdaq gave up early gains, with the Nasdaq reversing a 1% increase, to close 0.2% lower last night. The sell off in tech stocks which started earlier in the week, resumed with investors looking to rotate out of tech stocks into areas which are expected to benefit more from the US tax reform, which is currently travelling through Congress.

Investors had initially been giving the tax reform the benefit of the doubt, however questions over how much impact it can have, are starting to cap the tax reform rally. This is a country which is already experiencing economic growth of over 3%. After a weaker session last night, the US futures are pointing to a lower open later today.  

As a potentially welcomed distraction, the US session today will see investors start to look towards the non-farm payroll report at the end of the week. The ADP private payroll data released this afternoon, often acts as a guide as to what we can expect from the US labour department report on Friday. 

FTSE looks to push below 7300 

Here in the UK the FTSE dropped on the open and is trading some 0.4% lower as it looks to break below 7300. This is the FTSE’s third attempt on the level this week after so far failing to make an meaningful break below it. A weaker pound is offering some support to the FTSE, which is fairing better than its European counterparts – the Dax is trading over 1.2% lower in early trade. 

Brexit woes and political infighting keeps pound low 

Brexit woes and domestic political risk are keeping the pound in the red this morning. Whilst UK Prime Minister Theresa May is scrambling to try to find a solution to the Irish border issue, Tory Brexit hardliners Boris Johnson and Michael Gove, are planning a revolt, should May use this as an opportunity to remain closely aligned with the EU. 

Investors are aware that this division in her cabinet, could undermine chances of a Brexit deal being reached before the deadline next week. Furthermore, if a Brexit divorce deal does go through, the division of how the UK cabinet sees the future relationship between the UK and EU could create a lot of problems when discussing trade deals.

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