European trading week starts on a cautious note

European shares started the week on a cautious footing, in most cases only barely higher, with caution spilling over from Wall Street over whether the Federal Reserve will cut rates by as much as the market expects or not. These concerns dominated currency trading too, helping the dollar trade higher against the pound, the euro and the yen.

The earnings season in the US remains in full swing this week with investors paying close attention to the number of companies citing China trade tensions as the main reason for lower earnings. In the past week companies from a wide variety of industries have blamed trade frictions for their lower performance, including financials, clothing and shoe makers, chemicals and freight companies. President Trump’s recent rhetoric on China has done little to alleviate concerns and it is only likely to become more hostile as the election campaign in the US gathers steam.  

Asian shares, particularly on China’s stock markets, closed lower Monday as a new Nasdaq-type stock market started trading in Shanghai, seemingly sucking out interest and liquidity from the other markets. The new STAR market, which lists 25 Asian tech companies, managed to attract massive interest from domestic retail investors on the first day of trading. For comparison, the main Shanghai Composite index lost 0.6% and Hong Kong’s Hang Seng traded 0.8% lower, while some of the shares on STAR gained more than 500%.

Pound marginally lower ahead of Tory vote count

The damage to the pound has been fairly marginal this morning after a battering last week, mainly because Parliament had already voted to make it harder to push through a no-deal Brexit, meaning that whoever takes over Theresa May’s job this week will be somewhat limited in his scope for action. The votes are being tallied as we write and the final count will be announced Tuesday. But with the legal decisions already in place the pound may end up treading water until the next big political decision.

Oil prices are slightly weaker this morning as hedge funds, producers and traders are turning more cautious about oil despite tensions in the Persian Gulf continuing to build. With the Iranian Revolutionary Guard acting increasingly more hostile and both British and US forces responding swiftly, it would be too early to assume that oil prices will see a serious decline.