Volatility remains high amid trade war selloff

Chris Beauchamp IG

Early trading has seen the FTSE 100 rally by 40 points, but trade tensions continue to hamper risk appetite.

European equities post a small rebound
Vix still at four-month high
Sterling tries to rally after mixed employment report

Equities are attempting to claw back some lost ground, with UK shares doing particularly well compared to Europe, but the overall atmosphere of caution still prevails. Asian markets remained under pressure, and while US futures are looking more positive the escalating trade war is still driving bearish sentiment. Ironically of course the tariffs imposed by both sides will hit consumers, so as in all great contests this is turning into a test of endurance, with the US and China each looking to derive the maximum impact from the increased charges in a bid to hit their opponent where it hurts. An overnight recovery in USDJPY might provide some hope that risk assets are due a rebound, while the
Vix is edging back from a four-month high. Like all pullbacks, this one has been fervently wished for, but when it arrives the accompanying noise of ‘renewed bear market’ makes it hard for investors to keep their heads and buy the dip. A spike in Middle Eastern tensions is also not helping, as evidence points to Iranian involvement in the tanker explosions over the weekend.

Some valiant dip buyers have been seen in sterling this morning, thanks to some better figures on the employment front. Weaker wage growth however knocked the shine off the picture however; nonetheless, given the drubbing sterling has taken over the past few days a short-term bounce seemed likely. But as Brexit talks go nowhere and Nigel Farage rampages through the polling figures, it is clear that political instability is now a given for the UK.

Ahead of the open, we expect the Dow to start at 25,385, up 61 points on Monday’s close.

Author

Chris Beauchamp

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