26th July 2019


Asian shares creep higher as Sino-U.S. trade talks are on the horizon while western currencies falter

Improvement is on the cards for Asian shares as the prospect of fresh Sino-U.S. trade talks draw a welcome, while new lows are hit by the euro.

White House economic adviser Larry Kudlow expects Beijing to start buying U.S. agriculture products soon. Japan’s Nikkei added 0.3%, and Australian stocks were up 0.7% after hitting decade long highs.

Less welcome was news the U.S. Justice Department was opening an inquiry into major digital tech firms and suggested anticompetitive practices. The department say they have suspicions about “search, social media, and some retail services online”. This is possibly a reference to Alphabet Inc, Amazon.com Inc and Facebook Inc.

The report took a little of the brightness off a good overnight session for Wall Street, where positive quarterly reports from Coca-Cola and United Technologies helped ease concerns about earnings.

The ECB looks likely to offer a nod to easier policy this week, while futures remain 100% priced for a rate cut of 25 basis points from the Federal Reserve next week, and even imply an 18% chance of 50 basis points.

The effect of the IMF’s latest downgrade to its growth forecasts was assuaged a little by the prospect of wide-scale central bank largesse. Although yields on two-year Treasuries edged up to 1.837% overnight, they remain far below the cash rate and down 66 basis points for the year so far.

The dollar got some help this week from a deal to end the U.S. budget impasse, while the euro suffered a bout of nerves in case the ECB takes a more dovish turn. The single currency was down near two-month lows at $1.1144, having shed 0.5% overnight.

The dollar was steady on the yen at 108.13, and near a five-week top on a basket of currencies at 97.735. Sterling loitered at $1.2440 having fallen for three sessions in a row as the outlook on Brexit got ever murkier.

With Boris Johnson announced as Britain’s new prime minister, investors are no clearer on whether he would lead the country to a no-deal exit or find a compromise but there is certainly potential for sterling to weaken further.