Trade concerns weigh on sentiment

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After a soft start to the week there has been further selling seen in European stock markets this morning with trade concerns once more weighing on sentiment. Donald Trump has been particularly prominent in the press in the past 24 hours as he arrived in the UK for the 70th anniversary of Nato and a couple of separate remarks from the US president has caused a dip in equities.

Firstly, the announcement yesterday via Twitter that tariffs would be slapped on Aluminium and Steel imports from Brazil and Argentina put a cap on an early push higher for stocks. This morning comments that there is “no deadline” on the timing of a China deal and that is “probably better” to wait until after the 2020 election have caused an adverse market reaction with European stocks falling to the lowest level of the day and US futures dipping to levels not seen in a fortnight. 

The run higher seen in major benchmarks in the past few months has been built in no small part on questionable foundations with near incessant positive noises on the US-China trade front seemingly the major catalyst. However, this narrative is now being questioned once more and with less than 2 weeks until the 15% tariff increases are set to come into play there could be some increased volatility and a bumpy ride ahead.  

UK construction sector remains weak

In a similar vein to Monday’s manufacturing release, the construction sector PMI has come in better than expected but still in contractionary territory. A reading of 45.3 was comfortably higher than the consensus forecast of 44.5 and also a decent rise on the 44.2 prior. However, while this is the first beat on forecasts in a year, it is also the 10th time in the past 11 months that the metric has been sub 50 and you have to go back a decade to find a worse run. 

The pound has moved higher this morning, once more approaching the $1.30 and trading not far from its highest level in 7 months. The gains seem to be more a function of weakness in the buck rather than strength in sterling however, with the greenback being sold back following some disappointing manufacturing data across the pond Monday afternoon. 

The Conservative lead in the polls remains around 10% on average and with just 7 days left of campaigning traders will be keeping a close eye on whether we get a repeat of 2017 and this narrows further.