Stimulus Hopes Lift Sentiment & Stocks

Quickly recapping, equities experienced their worst week so far this year, and bonds soared as investors sought safety amid an escalation of the US – Sino trade war. The US and UK yield curves inverted flashing recession alarm warning bells. As the Dow dumped 800 points in one session, it was a tough week for trading buy anyone's standards.

The week, the ongoing trade dispute, recession fears and central bank action remain key themes. Asian markets kicked off a busy week for economic data and ahead of commentary from Fed Chair Powell, on the front foot. Asian markets moved higher following a strong close on Wall Street on Friday and after positive comments from President Trump regarding the trade dispute over the weekend. The fact that Trump and China are still talking is offering some optimism to the markets, even if the US isn't ready for a deal right now.

Growing expectation of stimulus measures from countries across the globe is going a long way to boost sentiment. A move unveiled by China to reduce borrowing costs for companies to prop up slowing growth, the promise of more spending by Germany in the case of a recession and the prospect of fresh tax cuts in the US are helping boost the mood on Monday.

Equities moved higher and treasury yields are seen rebounding from multiyear lows struck in the previous week. Whilst the dollar and the yen are holding steady, traders are selling out of safe haven gold.

Will Jerome Powell reset interest rate expectations?

Recession fears and concerns over the US -Sino trade dispute have eased at the start of the new week. In the absence of any further trade dispute headlines, investors will turn their attention to economic data and Fed Powell's appearance at the Jackson Hole Symposium for further clues at to the Fed's next steps.

Last week US data supported Jerome Powell forecast of a strong US economy and solid inflation. However, traders remain convinced the Fed will cut in September, owing to the downside risks stemming from the trade policy and slowing global growth. The CME FedWatch shows a September rate cut as being 100% priced in. Whilst last months cut was described as a "mid cycle adjustment", Fed Powell could use Friday's appearance at the central bankers gathering to set the market straight on where the Fed is going. The clear discrepancy between what the Fed says and market expectations needs to be addressed and Friday is shaping up to be that moment.

Euro sub $1.10 this week?

The euro was the worst performing currency in the previous week, falling 1% versus the dollar. Data last week was poor with investor sentiment and industrial production in Germany falling heavily. Eurozone inflation and pmi data are scheduled for this week and could send the euro sub $1.10. News of German stimulus plans should the German economy fall into recession offered support to the common currency at the end of last week. Any German spending stimulus could still be months away, however, meaning that ECB will likely have to act first.

Opening calls

FTSE to open 36 points higher at 7153
DAX to open 51 points higher at 11613
CAC to open 21 points higher at 5321