Europe outperforms despite falling chance of 50bp rate cut

European markets are on the rise, with weaker European currencies helping boost stocks. Meanwhile, oil prices are higher following heightened tensions between the UK and Iran.

• Europe on the rise despite fading expectations of a 50bp rate cut

• Pound on the slide as no-deal Brexit fears come back into play

• Oil prices rise as Iranian action highlights instability in Straits of Hormuz

European markets are making early gains today, with the region outperforming their Asian counterparts thanks to early declines in the euro and pound. The New York Fed sought to dampen expectations of a 50-basis point rate cut from the FOMC, with recent dovish comments from their President John Williams being played down as a gauge of action at this month’s meeting. While the rise in expectations of a 50-basis point cut provided strength for global stocks, we have now seen those expectations drift back down, standing at 22.5% off a high of 40% on Thursday.

The pound has been on the rise since parliament voted for a bill which would help avoid Boris Johnson proroguing parliament in an attempt to force through a no-deal Brexit. However, with the new leader being appointed this week, markets are facing up to the fact that a no-deal Brexit cannot be ruled out despite parliament’s clear disdain of such an event. Johnson is likely to win, and with just three months until the Brexit deadline, he is unlikely to find any means to avoid either taking us out without a deal, or going against his word to extend the deadline.

Oil prices are on the rise in early trade, after Iran seized two UK associated vessels in the Straits of Hormuz. This deadlock is unlikely to meet a swift resolution, and with geopolitical tensions on the rise, it makes sense to expect further upside for oil prices. One of the primary concerns for markets is that fact that such a strategically important waterway is becoming so unstable, with a fifth of global oil supply passing through the strait.
Ahead of the open we expect the Dow Jones to open 43 points higher, at 27,197