As market sentiment has picked up in recent sessions we look at the key factors impacting markets this week. The latest turn taken in the cycle of the US/China trade dispute, the Brexit conundrum coming to the fore again and central bank easing, are all in focus. We look at the impact on the outlook for forex, commodities and equities.
We have been here before, haven’t we? The cycle of the US/China trade has moved on once again moved back round to the stage of hope. “Let’s negotiate…again”. The US and China will supposedly meet in October for the latest round of trade talks. Risk appetite has picked up accordingly. The next phase will be nailing down a date, possibly with a promise from both sides not to escalate further in the meantime (which would be another mild positive for risk). However, caution is advisable still. As sure as night follows day, the actual meeting is still highly likely to end without agreement, and will disappoint. China insist that they can stomach further deterioration and they know that if they can hold out for another 14 months the 2020 Presidential Election could mean a Democrat rather than Trump to deal with. China play the long game very well. For now, risk appetite has ticked higher on trade, but the traction is likely to be limited. Traders will become far more focused on the Fed again and for that, a rate cut in September is fully baked in. After the ISM Manufacturing moved into contraction, it would be a incredible surprise for the Fed not to cut. However, therefore, for now, positive data is positive for risk appetite again. It will be interesting towards the end of this week therefore with the consumer data points, including inflation, retail sales and Michigan Sentiment. These are the last really crucial data points ahead of the FOMC on 18th September and with the consumer being the key factor holding up US economic activity, they will set risk appetite in front of the Fed.