Trade Hopes Lift Global Markets

Global stocks charged higher on Friday, lifted by reports of progress in US – Sino trade negotiations. US Treasury Secretary suggested lifting some or all tariffs currently on Chinese imports. This would be an incentive for China to make further concession when the two sides meet for further talks at the end of the month.

For now, this is just rumour. We have been here many times before over the last few months. The fact that the market is happy to jump from headline to headline, buying in or selling off on rumours reflects the just how important the trade issue is. Should we see some solid evidence that progress towards a trade deal is being made, then we can expect to see a sustained rally in riskier assets.

Oil rallies 1%
Oil jumped 1% higher on US - Sino trade optimism and OPEC oil cuts, peaking just shy of $53. The prospect of tariffs being reduced on China, crude’s largest importer kept buying interest in oil, whilst signs that the OPEC output cut had begun was also supportive to the price. However, gains in oil were capped after the International Energy Agency warned over slowing demand owing to a slowing global economy and rising US output as US shale companies up production. 

Pound Loses Ground on Brexit Headlines & Retail Sales
The pound kicked lower off $1.30 overnight and has continued selling off across Friday. Theresa May refusing to budge on her red lines is doing little to support the pound, whilst dismal retail sales data reminded the markets that the UK economy was not in a particularly good place either.

UK retail sales declined by 0.9% in December month on month hit by Black Friday and Brexit uncertainties. Consumers splashing out in November to take advantages of the discounts was followed by a reining in of spending in December. Add in to the mix low consumer confidence and high credit card debt by December and there is little incentive for consumers to dip into their pockets.

Sterling is heading towards $1.29 as confusing Brexit headlines and weak retail sales weigh on demand.

US Consumer Confidence Tumbles
US consumer confidence printing at 90.7, well below the 97 forecast, could see the dollar weaken, lending support to the pound. This is an ominous sign, as consumers start hankering down and businesses slow investment. The extended US government shutdown will be playing a large role in damaging confidence. The longer it goes on, the worse the implications for the economy.