FTSE lower as weaker dollar overshadows US Sino trade talk optimism

Whilst trade optimism boosted Asian markets overnight, the good spirits failed to lift European bourses across the session. After a brief move higher, the likes of the FTSE and the Dax edged steadily lower, weighed down in part by a weaker dollar. 

With around 70% of the FTSE constituents earning revenue abroad, a weaker dollar is a disadvantage for these multinationals. Multinational heavyweights such as AstraZeneca, Unilever and Diageo all moved lower.

Retailers and supermarkets were offering support to the FTSE in what is set to be a busy week for the sector. Higher sales from Aldi’s British unit boosted optimism that consumer were in a spending mood this festive period. Sainsbury’s and Marks and Spencer moved higher.

The Dax lot 0.5% on Monday paring some of Friday’s gains. US – Sino trade optimism was insufficient to keep the index afloat with investors instead eyeing a mixed bag of data. Whilst eurozone retail sales beat expectations, weaker German factory orders stoked fears of a slowing global economy, keeping demand towards the German index depressed.

Dollar extends losses
The dollar continued falling away at the start of the week, extending Friday’s losses following a more dovish Fed Chair Powell. Despite a phenomenal US jobs report, Mr Powell acknowledged market concerns on Friday. His comments that the Fed remains flexible over monetary policy soothed fears of the Fed hiking regardless of slowing economic conditions, boosting risk appetite whilst pulling the dollar lower. Weaker than forecast ISM non-manufacturing also hit on demand for the dollar, printing at 57.6 in December, down from 60.7 the month previous.

Traders will be paying close attention to trade related developments this week. US – Sino trade talks kick off today, with encouraging comments from both sides adding to Monday’s risk on sentiment. Whilst it is still far too early to suggest that a trade deal is in sight, this is a clear step in the right direction.  

Oil surges (again)
Oil rallied over 2%, rebounding from December lows, on trade optimism and signs of supply cuts. After a dismal performance last year, oil has started 2019 in rally mode jumping 8% since the beginning of the year. Oil is picking itself up off extremely low levels, hit mid-December after the Fed announced that it would continue gradually hiking rates. The more recent softening of the Fed’s stance in the face of increasing market concerns over global growth, and the fact that OPEC cuts are starting to take effect means that we are seeing a rebalancing of the market. 

Global growth concerns stemmed from the US – Sino trade war. However, as the two economic powers meet for the first face to face talks since the G20 in November, hopes are rising that WTI could claw its way back to $50 and Brent to $60.