Trading cautious with trade talks and Fed minutes in focus

Despite a softer start the FTSE has managed to grind higher into positive territory across the afternoon. However, trading was notably cautious, in line with global markets, as investors digest increased US political risk, whilst looking towards the outcome of US – Sino trade talks and the Fed minutes due later today.

With little in the way of economic data for investors to chew over, traders are showing some nerves in light of the barrage of headlines over guilty former Trump associates. In a double blow, Trump’s campaign chief being convicted of fraud and his former lawyer Michael Cohen pleading guilty, means Trump will certainly be starting to feel the heat. The key point with Cohen is that this is the first time that Trump has himself been implicated. Given the potential gravity of the situation in hand, the US markets were holding up reasonable well, with the S&P flat, whilst the dollar was trading 0.2% lower, back at the 95.00 handle versus a basket of currencies.  

US – Sino trade talks in focus
There are still two major risk events this afternoon which could create some volatility for the US markets. Firstly, the US – China trade talks. Post meeting headlines will be closely watched. Whilst the bar is low, with neither China or the US optimistic that much will come from these trade talks, it would only take an agreement to meet again to satisfy the bulls in the market. Should the two sides fail to even agree to another round of talks then we could expect to see the US indices continue to fall lower and flows into safe haven currencies such as the Yen increase.

FOMC to reverse the dollar’s decline?
Later today the minutes from the FOMC meeting on July 31 – Aug 1 will be released. The minutes could serve to remind investors why the dollar is a good buy. At the meeting in question the Fed, as expected did not raise interest rates, however they gave an upbeat assessment of the economy and remain on the path of continual and gradual rate rises. Whilst the market is pricing in a 94% probability of a rate rise next month, it is currently only pricing in a 64.5% possibility of a rate rise in December. A hawkish set of minutes could encourage the market to lift this probably and boost the dollar back towards 96.