Wall Street didn’t follow in Europe’s footsteps on Monday and avoided dismal losses, instead eking out a positive close overnight. Despite the higher finish in the US, trade jitters still rattled the market and limited any gains. Furthermore, the Dow managing three consecutive positive closes has not been sufficient to universally lift Asian markets overnight whilst European bourses are on track for a nudge higher after the starting bell.
Chinese markets were in for another rough session on Tuesday down a further 1%, despite support from Chinese state media. With the start of the US imposed tariffs now just days away and China expected to retaliate, alarm bells are starting to ring, sending the Shanghai bourse plunging to a two and a half year low on Monday, whilst the yuan also fell. Trade war fears are sending traders out of riskier assets, compounding the problem for China as an ermerging market. The timing of the tariffs comes just as the Chinese economy is taking its foot off the pedal; quite the opposite to the US, where the economy appears to be going at full throttle.
UK Construction sector to remain constant?
The UK construction sector will be in focus today as investors look towards the construction pmi. After rebounding strongly in May, activity in the construction sector is expected to have remained constant in June. A surprise to the upside could lift the construction sector however, the pound might be a tougher nut to crack. As we saw from the previous session, where even a better than expected manufacturing pmi was insufficient to boost sterling in the face of Brexit concerns and trade war fears. The pound hit a peak of $1.3150, however it could still struggle to push much beyond here until after the heavier hitting service sector pmi later on Wednesday.
Dax and Euro rally as Germany averts coalition collapsing
The euro staged a recovery late on Monday, as political risk in Germany eased dramatically. An 11th hour agreement between the clashing leaders of the German coalition government parties, Angela Merkel of the CDU and Mr Seehofer of the CSU, has meant that the fragile coalition has narrowly averted collapse; with Merkel once again showing her extraordinary ability to negotiate herself out of many a tight spot.
News that Merkel is safe and the fragile German coalition will live to see another day has encouraged traders back into the Dax, which had been suffering at the hands of investor anxiety about new snap elections. The Dax is on track to claw back all of its losses from the previous session, popping higher on the open. Meanwhile the euro has yet to push convincingly through $1.1650. With eurozone retail sales expected to dip lower in May, the common currency could struggle to catch a bid.