Asian markets and most equity futures have started the week off on the back foot. US – Sino trade wars are once again a pivotal theme. China responding in kind, on Friday, to Trumps’ $50 billion worth of tariffs on Chinese imports, by hitting US commodities with import pledges is unnerving investors. The tit for tat response is putting the two powers a step closer to an all-out global trade war. Investors will now be watching carefully for Trump’s response with further measures expected. The overriding concern here is how this is going to escalate with potential fallout being a slowdown in world trade and a drop-in business sentiment. Up until now we have seen investors escape into US tech stocks but that may be starting to run its course. European bourses are pointing to a negative start whilst US futures are also in the red.
Trade war fears and OPEC meeting concerns drag oil lower
Oil is seen extending Friday’s losses as the new week kicks off. Crude trades below $64 at fresh 9-week lows. Oil prices have been under notable pressure amid growing expectations that Saudi Arabia and Russia will make moves to ease the current supply cut limits at the OPEC meeting in Vienna on Friday. After a year of oil production cuts, the more recent US sanctions on Iran and the political crisis slowing production in Venezuela to an almost stand still, there is a growing consensus between the Saudi’s and the Russians that a “gradual” increase in production should be deemed necessary. This is unnerving oil traders, hence the sell off. The position is not so clear cut given that other OPEC members, such as Iran and Iraq are against raising production, fearing it could trigger renewed supply issues. Let’s not forget that US shale production is still a growing risk in the eyes of OPEC.
UK House prices hit record high
UK housebuilders could be in for a lift on the open as house asking prices hit a record high for the third straight month, according to Rightmove. Despite political uncertainty and stretched affordability house prices continued increasing in May, mainly thanks to declining stock availability in the North of Britain, overshadowing less activity in the South, where house prices in London fell for the 10th straight month. With looming Brexit uncertainty, those who can wait are doing just that.
German coalition division hurts euro and Dax
The euro is once again receiving a pummelling from the mighty dollar. After tumbling 1.3% across the previous week, the euro slid lower versus the dollar in trading on Sunday amid an increasingly apparent divergence on monetary policy. Furthermore, as trade war fears and more hawkish Fed speakers hitting the airwaves this week could play to the dollar’s advantage, the growing political tension and division in Germany’s coalition over migration is likely to add to not just the euro’s woes, keeping it firmly out of favour, but also the Dax, which is lagging behind its European peers, ahead of the open.
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