FTSE drifts lower despite fall in havens

Falling treasuries and gold prices are doing little to boost the FTSE this morning, with Donald Trump declaring that a positive solution to the Chinese negotiations are doubtful. Meanwhile, Brent crude hits $80, raising inflation expectations.

• FTSE lower as fears over Chinese talks re-emerge

• Brent hits $80, driving up inflation expectations

• Five-month high for dollar index driving US stock underperformance

The FTSE 100 is drifting lower at the open today, coming off the back of yesterday’s record close for the top UK index. A distinct lack of major economic releases throughout the day shifts the focus onto residual geopolitical and economic factors, with rising bond yields and fears over a breakdown in US-Chinese trade talks proving a drag at the start of the day. Donald Trump’s doubts over the success of trade negotiations with China may be part of an ongoing strategy, yet the continued instability in expectations provides an uncertain environment for investors. However, with gold hitting a four-month low, and US treasuries falling, there is evidence that markets are becoming increasingly
accustomed to Trump’s wildly varying announcements.

The heavy commodity focus in the FTSE 100 has helped push outperformance in the index of late, with the continued rise in oil prices pushing Brent into a three-year high of $80 yesterday. The continued rise in crude prices is somewhat of a hindrance for economic growth, with the continued rise in energy prices expected to drive up cost push inflation, leading to monetary policy. Meanwhile, the FX market remains one of the key drivers of stock market activity, with a near five-month high for the dollar index highlighting why we have seen such a significant underperformance in the US compared with the European indices.

Ahead of the open we expect the Dow Jones to open 24 points higher, at 24,738.