Equity markets, as we speculated at the start of the week, are now being whipsawed by trade sentiment. European equities weakened in early trade on the back of further weak economic sentiment data out of Germany. Then came the announcement that Trump was delaying some of the tariffs on Chinese exports and that further meetings were due to take place in the next two weeks. Wall Street climbed over 1.5% in early trading. Trump also announced that talks had been taking place between the US and the new government to introduce new trading arrangements with the UK once we had left the EU.
The weak GDP report last week was partly offset by some reasonably robust employment data from the UK on Tuesday. Giving some economists hope that the UK will not suffer two-quarters of economic contraction. We will get something of a recovery in the third quarter. This news may have been expected to support sterling; however, it remains close to the lows. Sentiment is weak in Europe as a whole. The UK is as much a part of that, as some papers report record short positions on the sterling. Sectors exposed mainly to the domestic economy such as banks, property and housebuilders continue to underperform the broader market.
As we have pointed out, August is a thin month for trading due to the holiday season. The recent volatility may continue to keep investors on the edge of their sunbeds as trade wars become the new rate cuts.