Geopolitical risk has ramped up several notches over the weekend after a coordinated bombing of supposed chemical weapons manufacture sites in Syria. The reaction of financial markets on Monday morning seems to be relatively contained, but this is a story that could continue to run and have an impact in the days and weeks to come. Trading on newsflow is never an easy prospect in the short -term but we consider the outlook for forex, equity indices and commodities this week.
After weeks of ramping up tensions with its trading partners, it may be of little surprise if the US administration is using this as simply a bargaining position after all. All suggestions are that an agreement over a renegotiation of NAFTA is close, whilst Trump appears to be far more conciliatory over the potential tariffs with China and now even the prospect of returning to the table over the Trans Pacific Partnership. Trade disputes have been a source of negativity for market sentiment, but this seems to be changing now. Markets will remain cautious over how the geopolitical position in Syria develops, with the threat of conflict with Russia still bubbling on the backburner, however, for now this issue seems to be less of a concern for traders. Making knee-jerk trading decisions on newsflow makes for elevated volatility but also difficult trading environment, at least on a near term basis. Somehow looking past the noise and the longer term trends should ultimately re-assert. Subsequently, the dollar remains under pressure and rallies remain a chance to sell. Equity markets which had been looking expensive earlier in the year now look much better value, especially in Europe. This could be exacerbated by the ECB which may have see slippage in its move towards drawing the Asset Purchase Program to a close in the coming months (due to sluggish inflation). In further hampering the euro, this could drive strength into export heavy indices such as the DAX.
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