Six day rally comes to an end

All good runs must come to an end and while this one is hardly one for the history books, it was undoubtedly welcome given the worry that was spreading early last week.

US equity markets gave up early gains to just about end in negative territory on Tuesday, weighing on Asian stocks overnight and European futures as we head into the open. It brought a decent run to an end, one that started suddenly as investors became more convinced that the Fed would cut interest rates sufficiently and ease slowdown fears.

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It seems we’re dealing with a very emotional investor at the moment, the way we’re so suddenly swinging between such optimism and pessimism on the basis of such minor actions. A lot seems to hang on how many rate cuts we’ll see from the Fed and to be honest, I think market expectations are too high so we may be setting ourselves up for disappointment.

The rebound may be providing some near-term comfort as we continue to reassure ourselves that everything is ok and the Fed will come to the rescue but I’m not sure that’s healthy, accurate or warrants the kind of bounce we’ve seen over the last week. Then again, a successful Trump/Xi meeting later this month may negate the need for such a significant u-turn from the central bank.

UK data encouraging but leadership race remains a drag on GBP

On this side of the pond, it’s all gone a little quiet. Well, compared to the Brexit noise we’ve become accustomed to. The Conservative leadership race has put Brexit on hold for now, which is handy as the new end of October deadline creeps ever closer.

The number of candidates remains at 10 but with a number of the front-runners Brexiteers, it’s no surprise that the pound remains out of favour. Boris Johnson is probably seen as the greatest risk for the currency and while we keep getting told that the favourite never wins, it’s not providing much comfort at the moment.

We have no UK data out today but what we have had so far this week has been mixed which is pretty consistent really. April was a bad month for the economy but was primarily driven by one-off factors which suggests we’ll return to modest growth soon enough. The labour market data was far more encouraging and may well give policy makers at the BoE a decision to make later this year is Brexit can be resolved in an orderly and undisruptive manner.

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