A weaker close on Wall Street and protests in Hong Kong are keeping European markets under pressure this morning. The FTSE is down almost 0.4%, weighed down by a decline in British American Tobacco shares following the company’s results. Banks and insurers are also sliding while retailers and supermarket chains are providing some counterbalance.

Whatever was left of hopes that the US and China would reach a trade deal before the summer holidays was doused by the latest comments from US President Trump who said that there would be no deal unless China sticks to the promises it made in earlier negotiations.  

Sterling steady in eye of the no-deal storm

Currency traders are trying to work out what to make of what is happening with the Tory leadership contest as Boris Johnson launches a campaign promising a definite Brexit on 31 October, deal or no-deal. However, opposition is already building not only from politicians - Labour has tabled a motion to prevent a no-deal and will try and put it up for a parliamentary vote by June 25 – but also industry leaders who see a no-deal Brexit as the worst case outcome. The pound has notched marginally higher against the dollar and the euro, waiting for a clearer signal from the political front.

The dollar is struggling to hold its ground and has slipped close to a three month low, still under pressure from the possible Fed rate cuts debated at the central bank’s last session. The greenback has tracked US Treasury yields lower since a weaker-than expected job market report last Friday, which will also affect the Fed’s next debate that starts next Tuesday.

Oil slips as trade frictions persist

The protests in Hong Kong and no signs of an improvement in the Sino-US frictions are keeping oil prices under pressure. Brent crude has dropped more than 2% as it became clear that the US and China are nowhere close to reaching a trade deal. Given the current circumstances US agencies have lowered their forecast for global oil demand for this year, adding another reason for investors to look for alternative commodity investments.

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