There has been a shift in market sentiment once more across major markets as a positive mood has just soured. Firstly, risk appetite has taken a hit amid rising geopolitical tensions between Pakistan and India which are two potentially volatile nuclear powers. Donald Trump has seemingly been unable to reach any agreement with North Korean leader Kim Jong Un over denuclearization. The absence of a joint signing ceremony will certainly raise an eyebrow or two, but there is no suggestion at this stage that the meeting ended acrimoniously. Furthermore, on the trade negotiations, US Trade Representative Robert Lighthizer has suggested that whilst there would not be an escalation of US tariffs on China, the threat would need to be maintained even in the event of a deal. Lighthizer also suggested that “much still needs to be done” to reach a deal. Despite Trump’s positivity on the negotiations which has helped market sentiment in recent weeks, Lighthizer’s comments add a dose of reality surrounding the deal prospects. The US dollar has previously been a safe haven play on the trade negotiations stumbling, and once more this is threatening to be the case today. Risk appetite has been further hit on news of the Chinese economy overnight which reflected continued economic slowdown. The official China PMIs are falling, but most concerning is that the Manufacturing PMI has fallen further into contraction territory, to a level of 49.2 which missed estimates of 49.5. This looks to be a risk negative session ahead.
Wall Street closed lower for a second session yesterday, with the S&P 500 -0.3% to 2785, with US futures similarly lower again early today. This has helped to drag Asian markets lower, with the Nikkei -0.8% and Shanghai Composite -0.5%. European markets are also looking weaker today, with FTSE futures -0.1% and the underperformance of the DAX futures -0.5%. In forex, there is little significant direction yet and notably the Aussie is holding up well, but there is still an outperformance of the yen, whilst sterling is just shading lower after two days of considerable gains. In commodities, the correction on gold has rebounded off $1316 and is trading a touch higher now. The rebound on oil in the wake of the unexpected crude oil inventories drawdown has been pared slightly this morning.
The key focus on the economic calendar is the announcement of how US growth performed in the final quarter of 2018 having been delayed for several weeks due to the US Government shutdown. However, first up throughout the morning the major Eurozone economies provide inflation data with the key German flash inflation for February announced at 1300GMT which is expected to grow by +0.5% on the month. US Advance Q4 2018 GDP is at 1330GMT which is expected on consensus to be +2.4% (down from +3.4% final reading in Q3) however, the prospect of a surprise is elevated, given the Atlanta Fed’s GDPNow suggests it may be closer to +2.0%. Weekly jobless Claims at 1330GMT are expected to tick slightly higher to 221,000 (from 216,000 last week). Vice FOMC chair Ric