Markets, UK Jobs, Oil, Gold

The stock market run looks set to continue on Tuesday, with Europe trading comfortably in positive territory and US futures signalling a similar session on Wall Street.

Safe to say, the changing expectations for interest rates is the primary reason for such a strong rebound in the markets that didn't look particularly likely at the start of last week. Once again, it's central banks that are left to fill the economic void, easing investor fears over trade wars and a global slowdown. Of course, should the G20 meeting between Trump and Xi at the end of the month reach a successful conclusion, that balance may shift while also likely being favourable for stock markets.

UK labour market data remains very healthy

Sterling has been given a boost in early European trade from the latest jobs data, which showed unemployment remaining at a 44-year low and earnings growth staying above 3%. At a time when the economy is slow, global risks are building and Brexit is unresolved, this data is quite remarkable and very encouraging. Of course, its resilient to Brexit uncertainty and everything else may not last in the event of a broad slowdown or no-deal, but that's no reason to be discouraged.

It also leaves the Bank of England in a very curious position, not that you'd guess so from a market pricing perspective, with a rate hike entirely priced out for the next year and no move at all the most likely outcome. Policy makers may well be happy to sit back and wait until October to pass before deciding what to do next but in the unlikely event that we exit with a deal, they may be left seriously considering whether a hike is appropriate, especially given the current level of interest rates. Of course, there's a lot of if's here and plenty can change over the next four and a half months.

Clearly traders aren't feeling too optimistic which is why we find sterling trading not far from its lowest levels this year. Of course this largely relates to the more pessimistic outlook on Brexit, with a number of the more favoured Conservative candidates – including the frontrunner – preferring a harder exit and seemingly perfectly comfortable with no deal.

Oil price stumbles after rebound

The oil price rebound may have already run into a little snag, with WTI running into some resistance around $55 on Monday (Brent similarly around $64). The rebound in recent sessions had been attributed to the US/Mexico deal on the border to avoid tariffs, improved overall sentiment and suggestions from Saudi Arabia that an extension was effectively guaranteed.

The latest stumble may prove to just be some early profit taking but there is a feeling that there's more to it. There still appears to be little idea of how much Russian involvement there'll be in an extension and with the date of the OPEC+ meeting now looking like early July, perhaps producers are looking to make a decision with one eye on the outcome of the Trump/Xi meeting.

Gold bulls face first test

We're seeing some more profit taking in gold on Tuesday, with the rebound in the dollar and stronger risk appetite likely contributing to the declines. Gold failed to break above $1,350 on this occasion, or hold above the February high, but that doesn't necessarily mean the rally has run its course. Price has now fallen back towards $1,320 which could be an interesting test, having previously been a notable area of resistance. A rotation off here could see last week's highs coming under pressure again.

A break below here wouldn't be particularly concerning though, as the rally that preceded it was very strong. We've only seen the rally correct by around a third now - a level that will be of interest to traders – but a deeper correction is hardly a red flag. The $1,300-1,310 area could be much more interesting, at which point we'll get a much better idea of just how bullish this market is.