Markets, PMIs, EUR, USD, Gold, Oil

Markets buoyed by Sino-US talks and PMI data

It's been a strong start to trading on Wednesday and the US looks poised to follow, with futures up around half a percent ahead of the open.

The optimism has carried over from Asia where reports of progress in Sino-US trade talks and another strong Chinese PMI reading provided the fuel for Wednesday's rally. We've spent so long fretting about a Chinese slowdown and the impact that a prolonged trade war could have that this week's data releases have come as something of a surprise. The services PMI capping things off, coming in well above expectations at 54.4 – the highest since January 2018 – is more than welcome.

There's also positive noises around the trade talks, with suggestions that the two sides are 90% there obviously providing encouragement. Obviously the last 10% was always likely to be the most challenging but we're hearing nothing at the moment that suggests a deal is at risk, rather there's a lot of optimism that it will get done. We're just going to have to be a little patient.

Adding to the good news this morning has been the eurozone PMIs – it's clearly one of those days – which have been beating expectations right, left and centre. Obviously, it's worth noting that the worst of the PMIs have come from the manufacturing sector and as the numbers showed earlier in the week, this remains a major concern, but these numbers for the services sector are a positive point.

Gold flat despite dollar weakness

The euro was quite slow to respond to the data but it seems an improvement in overall risk appetite as the morning has progressed has seen it play catch up. This has put further pressure on the dollar, which was already being weighed on by gains in the pound on the back of Theresa May's attempts to salvage Brexit with the help of the opposition, a move that could see Parliament form a majority around a softer exit.

This reversal of fortune for the dollar has done little to lift gold, which remains quite flat on the day. Perhaps the improved risk appetite is undoing any good that a softer dollar may otherwise have brought, or maybe recent price action has just made gold bulls a little more apprehensive, with the price having broken back below $1,300, with $1,280 now offering the next major test.

Oil pares gains after bouncing off notable resistance

Oil prices are paring earlier gains but remain higher on the day. We've very much seen oil prices benefit from stronger risk appetite this year and that again appears to be what we're seeing this week. It also comes at a time when US output is stabilising, oil rigs are on the decline and OPEC+ remains committed to output cuts. It's been something of a reluctant rally over the last month or so but it appears to have gathered some momentum this week.

It now faces a big test around notable resistance though, just as momentum is building. Perhaps this is a bullish signal but so far, we're yet to see a breakout. If price can break above $63 in WTI and $70 in Brent, then $64.50-65 and $71.50 would be the next notable resistance. The EIA data today could provide the next catalyst, with APIs report of another small build on Tuesday slowing the rally.