Lingering trade war concerns pulled the Dow Jones over 150 points lower overnight, as investors feared that a flawed trade policy could be as significant and damaging as a flawed monetary policy. Whilst key trading partners Mexico and Canada have been given exemptions from Trump’s 25% steell and 10% aluminum tariff, concerns remain over whether the tariffs will ignite a tit-for-tat response from other trading partners, such as China and Europe.
NASDAQ hit fresh record high
Whilst heavyweight industrials dragged the Dow Jones lower, the NASDAQ extended Friday’s rally hitting a fresh intraday and closing high at 7588. Tech stocks are up 10% on the year so far and have been particularly in demand over the past few sessions, as investors seeking shelter from a potential trade war head towards this sector.
Weak sentiment, which saw the Dow and S&P 500 end broadly lower, flowed across through Asian markets overnight and indicates a softer start to European bourses when trading begins this morning.
May points the finger at Russia
Just as the geopolitical environment shows signs of improving, with relations potentially starting to thaw between the US and North Korea; UK and Russian relations take a sudden and sharp turn for the worse. In a dramatic House of Commons statement, Prime Minister Theresa May accused Russia of being responsible for a nerve agent attack in Salisbury. May’s issuance of an ultimatum to Putin’s administration to provide an explanation by midnight Tuesday has encouraged investors to once again seek out traditional safe haven assets such as gold and the Japanese yen. The precious metal rallied over $10 from its early low of $1315, whilst USD/JPY dropped just shy of 0.6% in the previous session to 106.37.
Spring Statement a non -event?
With a light economic calendar this morning, market participants will cast a glance to Chancellor Philip Hammond’s Spring Statement. There will be no spending or tax announcements meaning this is expected to be a non-event from the start. The only area of real interest could be the updated OBR economic and public spending forecasts, which could provide a small injection of volatility into the pound.
Brexit headlines boosted the pound in the previous session, as hopes resurfaced of a post Brexit transition deal being “close”. GBP/USD climbed over 0.3% on Monday and was seen consolidating at around $1.39 overnight, awaiting further direction from US CPI data.
US CPI to push GBP/USD back above $1.40?
Inflation will return to the spotlight today, after weak growth data on Friday calmed market fears that the Fed would need to hike rates more aggressively than initially thought. Just one month earlier, following better than forecast wage data, a wave of concern over higher inflation and higher interest rates sent market volatility soaring and US equity indices into correction territory. This time round the market conditions are quite different. Friday’s weaker than forecast wage data has meant that market fears of a faster pace of rate hikes have eased, although sensitivity to inflation data is expected to remain high.
GBP/USD has been steadily gaining ground versus the dollar since the beginning of March. However, it has struggled to move beyond $1.39 mark. Should GBP/USD regain the $1.3930 level on a weak CPI print then the pair could target the pyschological level $1.40.
On the downside, a stronger than forecast inflation read could see GBP/USD attack support at $1.3840, before opening the doors to $1.38.