Risk off as Brexit & US – Sino trade deal hopes fade

Risk off as Brexit & US – Sino trade deal hopes fade

After a phenomenal end to trading last week, global equities were on the back foot at the start of the new week. As investors took a second look at Brexit and the US – China phase 1 trade agreement, risk off trade dominated.

On a second glance and in the cold light of day, investors are not viewing the much-hyped breakthrough in US – China trade talks in quite the same way as before the weekend. After a more thorough analysis investors are viewing it a mere promise for a month’s truce; a promise which could easily be reversed. This is not the first time that we have seen the market over inflate actual developments, only the cool their opinion on a second look; it probably won’t be the last either.

As if on cue, weak data from China highlighted the negative impact of the ongoing trade dispute on the world’s second largest economy. Chinese exports dropped -6.5% year on year whilst imports tumbled an eye opening -8.5%. Traders are once again turning gloomy over the outlook of a meaning trade deal being agreed and the outlook for the global economy. As a result, riskier assets such as equities were out of favour, whilst safe havens gold, the Japanese yen and the US dollar all gained ground.

Pound drops on Brexit

The pound dropped lower across Monday as investors reconsidered the chances of a Brexit deal. Last week’s optimism had faded after the EU poured cold water on the prospects of a deal. That said, the fact that the pound remains over $1.25 means that pound investors are more convinced that a deal can be achieved than they were this time last week.

The Queen’s speech as she reopened Parliament provided little distraction for pound traders. The Queen announced 26 new bills under Boris Johnson new agenda. However, the fact that he lacks a majority means his plans are highly unlikely to become law.

Too late for a Brexit deal?

There are now just three days remaining until the EU Summit. Whilst there has been a shift in tone by the EU and the UK three days is possibly too little time to secure a deal. If Boris was willing to extend Brexit things could be different, however the PM has repeated his do or dies Brexit rhetoric raising doubts that he will accept the Benn act forcing him to request an extension. If there are no more optimistic words this evening, then we could expect to see the pound start selling off again tomorrow back towards $1.24 as the time limit draws closer.