Morning Brief – Tuesday 7th

Trump is like a box of chocolates; you never know which one you’re going to get.

Noel, I’m ready for the question: deal or no deal? Perhaps the bluntness of the presenter of the (in)famous Channel Four television show would be welcomed in Sino-US trade talks. Markets yesterday took badly to the whimsical tweeting of the 45th President of the United States of America.

For weeks, perhaps even months, markets have continued to price in the effect of trade war resolution. The US Dollar has seen less defensive demand in light of the event, emerging markets have gained a footing and, in paricular, the Aussie Dollar and Japanese Yen which represent the monies of key-Chinese trading partnerships, have enjoyed a healthy demand.

With the two blunt tweets included below, Trump ruined this calm and sent markets tumbling over the weekend. Equities took a sharp turn lower in early European trading with investors shifting assets into safer avenues including treasuries and so-called “safe-haven” assets. Sterling’s unique risk-profile amidst the Brexit negotiations saw it also lose considerable value despite sanguine reports attesting to considerable progress in cross-party talks.

The dust storm caused by Trump’s reminder of increased tariffs due this Friday settled as trading continued. As sentiment towards the trade deal warmed, rhetoric surrounding the tweets shifted to internalise the messages as a threat to the Chinese delegation to act with haste instead of an attempt to belittle extant progress.

In the United Kingdom, which yesterday observed a bank holiday, Sterling took heavy losses. Amidst limited liquidity, the Pound fell approximately 0.5% on a trade weighted basis. Today represents May’s self-imposed deadline for Brexit progress with no official word visible so far. Reports suggest that talks remain constructive despite the considerable cognitive dissonance between the two party leaders.

May has clung onto the premiership for 23 months commanding a conflicting minority government following a general election that she herself demanded in order to bolster the position of her Conservative government following the resignation of David Cameron. The opacity of the cross party talks and their underlying hostility is unsurprising given the circumstances of the interaction. However, risks appear skewed to the upside given yesterday’s bearish price action. Any indication of cross-party concurrence should afford Sterling additional value, raising the Pound across the board.

On the side of the trade war, Chinese authorities have reported that talks will go ahead in Washington tomorrow, improving the soured tensions regarding a potential resolution. With two market-defining phenomena forecast to reach their pinnacles this week, perhaps the historically low volatility that markets now experience could be reversed.

Discussion and Analysis by Charles Porter

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