Trade War Fears Overshadow Oil at $80, FTSE down from record closing high

Wall Street failed to catch onto the enthusiasm which had washed across European markets in the previous session. The Dow ended lower overnight, as renewed trade war concerns and good, but not great earnings from Walmart and Cisco overshadowed oil hitting $80 the barrel. 

The rally in oil has been relentless over the past two weeks, surging over 10%, before striking $80 per barrel; a 260% rally from its nadir back in 2016. With supply shortages from crisis hit Venezuela only likely to worsen, Iran sanctions just kicking in and US oil supplies drastically lower, this rally has potential to go higher. The only major constraint on the price of oil right now is US oil production. After last week’s Baker Hughes report saw 10 new rigs added taking the total to the highest level since 2015, traders will be watching today’s rig count carefully to assess whether the recent steeper rise in price is translating into a ramping up of domestic output. Energy stocks were unsurprisingly the best performer sector in the broader US market.

With a light economic calendar, the markets were particularly sensitive to any news flow. Comments from Trump that China is “very spoiled on trade” did little to calm anxieties as US representatives meet with those from China for trade talks. Asian stocks moved cautiously higher as, so far, some sort of trade arrangement looks more likely than these talks actually falling through, and this would be good for overall market sentiment.

Soft Brexit hopes buoy the pound

The pound managed to squeeze out a positive close versus the ever stronger dollar, as soft Brexit hopes were revived once again. PM Theresa May quickly stamped out the earlier rumours that the UK would be looking to stay in the customs union after 2021. Instead reports have claimed that the UK government will use remaining in the customs union as a backstop to prevent a hard borer in Ireland should the Irish border issue remain unresolved. Whilst the prospect of a last resort softer Brexit offered some support to the pound, these recent reports have also brought Brexit back to the foreground after being out of focus for some months.

FTSE easing back from all time high

A streak of weak data, a dovish BoE and fears of a slowing labour market have dragged the pound lower over the past six weeks. The FTSE however, has been a clear beneficiary. A combination of a softer pound and rallying heavyweight oil stocks helped lift the FTSE to a fresh closing high on Thursday. After starting the year in pretty bade shape, falling sharply for the first two months, the FTSE has just got on with what it needed to do, slowly clawing back the lost ground.

With metals trading lower across the board overnight, commodity stocks plus a marginally stronger pound and a marginally stronger could set traders up for profit taking into the weekend.