We take a look at what is driving forex, equities and commodities markets this week. Moves on yield differentials and the US dollar are still key for market direction whilst geopolitical factors are once more impacting.
Following a few weeks of reduced geopolitical risk and reduced volatility, the forces of global politics are once more taking more of a grip again. The question is whether this will begin to impact more negatively on market sentiment. Trade negotiations between the US and China have been constructive so far, with tariffs “on hold” and apparent offers from China to reduce the enormous $335bn trade deficit. However, this could all still change on the sending of one tweet. Currently, the difference this time around is that market volatility is far lower and more settled this time around. However, could this be a sign of market complacency? With European equity markets having seen a huge recovery already, some (FTSE 100 and CAC 40) pushing record levels and the VIX serenely hovering around 13 again could this primed for a market shock again? The US/Iran nuclear sanctions situation seems to have been overlooked somewhat, whilst Donald Trump’s proposed summit with Kim Jong Un could be at risk as they seem unable to settle upon a common definition of the word “de-nuclearisation”. Italian politics is never settled for long and the new coalition could destabilize. With BTP yields spiking higher and Bund spreads widening it seems that the fallout which has been contained within Italy so far, could still begins to translate to broader Eurozone markets. Back on trade, the progress in NAFTA discussions is not that great either, with US Trade Rep Lightizer suggesting that the negotiations are “nowhere close to a deal”. Geopolitics could yet play a role in driving markets in Q2.
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