Stocks surge despite Brexit and US election uncertainty

Improvements to Chinese industrial profits data has lead to outperformance for the Dax. Brexit talks look set to enter the final stretch, with the summit deadline just three weeks away. Meanwhile, Trump’s tax returns provide us with yet another curveball, with just five weeks until the US election. 

• Dax leads Europe higher.

• Brexit talks enter the final stretch.

• US election looms, with Trump tax returns unlikely to be the last curveball.

German stocks are leading the way higher for the rest of Europe in early trade, with the index building on Friday’s resurgence to kick-start the week in style. Strong industrial profits data from China saw a rise of over 19% for the month of August, with the effects of rising demand enhanced as costs were lowered. With the manufacturing of equipment on the rise in China, there is plenty of reason for optimism when we look at the prospects for a manufacturing-led economy such as Germany.  

Brexit talks are back on the agenda, with Michael Gove heading to Brussels for talks ahead of tomorrow’s final scheduled round of negotiations. The sterling rise seen this morning serves to highlight the hopes that we could see some form of breakthrough as we enter the final straight, with rumours of concessions on both sides serving to highlight the possibility we have turned a corner. The hope is that Barnier and Frost will be able to progress talks enough to enter a two-week ‘tunnel’ in a bid to thrash out a deal by the 15 October deadline cited by Johnson. As things stand, markets have become accustomed to the idea that talks could fail, leaving the potential for significant sterling gains if Johnson manages to emerge with a positive deal from these late talks. 

With just over five weeks until the US election, political drivers look set to dominate sentiment for global markets owing to the uncertainty over which of these widely contrasting candidates will take us forward over the next four years. With Trump calling for candidates to be drug tested ahead of tomorrows 90-minute debate, all eyes will be upon that performance as a key indicator of whether Biden can stand up to the scrutiny. The timing of today’s Trump tax returns published in the New York Times is no coincidence, and we are likely to see plenty of major revelations come out of the woodwork as both camps seek to undermine their opponent. While many nationwide polls point towards a Biden victory, the Brexit and Trump victories in 2016 should provide caution when it comes to treating the polling data as gospel. 

Ahead of the open we expect the Dow Jones to open 229 points higher, at 27,403.