Profit taking seen in light trading

US paring gains after bank holiday weekend

The US returns from its long bank holiday weekend on Tuesday with stock market in profit taking mode, following four consecutive weeks of gains.

It would appear that investors took advantage of light bank holiday trade on Monday to lock in some profits following a very encouraging post-Christmas period. This is being reflected in US futures ahead of the open, with indices on Wall Street seen opening off around half a percent, similar to the declines we’ve seen across Europe at the start of the week.

This comes as talks between US and Chinese officials appear to be progressing well, with the 90 day deadline a little over a month away. Trump may have denied that the US is considering lifting tariffs – following reports that Steve Mnuchin has suggested doing so in order to draw more concessions from China – but it would appear that there is a desire from within parts of the administration to get a deal done.

Meanwhile, there has also been reports that China has offered to increase imports over a six year period in an effort to reduce the imbalance, as the country reported its slowest rate of growth in 28 years. As ever with these reports, it’s difficult to pick false stories from those with substance but I think there’s probably no smoke without fire here and both sides are keen to make work towards a solution quickly. Whether it’s the Chinese economy, US and Chinese markets or Trump’s 2020 re-election bid, there’s a lot to be gained from these going well for both sides.

Appetite for market risk is very low

Market shrugs off decent UK jobs report

The UK jobs report has somewhat fallen off most people’s radar this week, and understandably so considering the far more pressing issue of Brexit and its effect on the outlook for the economy. The jobs data itself was actually very good, with unemployment falling to 4% as more jobs were added than expected, while wages grew at 3.4%, which also exceeded market expectations.

Unfortunately, the state of the labour market right now pales to insignificance compared to how it will be once the UK leaves the EU, which is currently scheduled for 29th March, making the current negotiations far more impactful for sterling. The pound did push a little higher after the release to trade just above 1.29 against the dollar but the size of the move itself was small and just added to earlier gains.

DAX under pressure as UBS blues drag down banking sector

Oil pares gains on growth downgrades

Oil is continuing to pare gains on Tuesday, with the latest pullback being attributed to the slower growth numbers from China and the IMFs revisions for global growth. While in skittish markets this may be enough to further exacerbate downward moves, this looks like nothing more than profit taking with these headlines another convenient reason to do so.

WTI and Brent bounced around 25% from their festive lows just under a month ago and a slow start to the week is prompting some profit taking. Oil is very much just a reflection of risk appetite at the moment and the fact that these declines are corresponding with similar moves in equity markets is not a coincidence. The test for WTI and Brent to the upside continues to be around $55 and $65, respectively.

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