Contradicting reports on the state of US-China trade relations may create a sense of confusion across markets, while also possibly demotivating investors towards global trade developments, according to Lukman Otunuga, research analyst at FXTM.
Global sentiment was initially supported by reports that the United States and China would potentially be restarting trade talks in a bid to de-escalate tensions. However, this optimism was later squashed by news that US President Donald Trump is considering imposing tariffs of 25 percent on $200 billion of imported Chinese goods.
To this end, Asian shares closed mixed Wednesday while European stocks drifted lower as the uncertainty over US – China trade tensions weighed on risk appetite.
The Pound’s response was fairly muted despite activity in the UK manufacturing sector cooling to a three-month low at 54.0 in July.
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Investors are specifically more interested in Thursday’s BoE policy meeting and whether the central bank moves forward with an interest rate increase.
Even if the BoE pulls the trigger in August, there is a suspicion that this could be a one-and-done hike. With inflationary pressures cooling and Brexit uncertainty grating on sentiment, the central bank is likely to hold off any further monetary policy normalization this year.
“These latest developments have yet again displayed how inherently unpredictable the Trump administration has been on trade. While there is a possibility that investor complacency kicks in as trade developments drag on, it must be kept in mind that a trade war presents a major threat to global stability,” he said in a note to business a.m.
However the dollar on the other hand nudged higher against a basket of major currencies ahead of the Federal Reserve monetary policy announcement that is due to be made later Wednesday.
Investors arte expected to closely scrutinize the policy statement for fresh insight into the US’ economy and monetary policy. Market expectations over the
Federal Reserve raising interest rates two more times this year could be reinforced if the Fed adopts a hawkish stance.
Prior to the Fed meeting, much attention would be directed towards the ADP Employment Report for July, which could offer insight into the health of the labour market. A figure that meets or exceeds market expectations of a 186k increase may provide some additional support for the dollar.
For commodities oil prices extended losses Wednesday after an unexpected build in US Crude stockpiles encouraged sellers to attack the commodity.
“With crude oil posting its biggest monthly loss since July 2016, could the party be coming to an end for bulls? The technical perspective is displaying signs of exhaustion from the bulls, with prices failing to keep above the stubborn $70 resistance level on repeated occasions. A solid breakdown below $67.70 could inspire a decline towards $67.00 and $66.60, respectively,” Otunuga highlighted.