Stocks gain on trade hopes; Where next for GBP?

Summary:

• Equities rise on reports of US-China talks

• Germany considers cutting corporate tax

• Stock of the week: Duke Energy

• What does Parliament’s suspension mean for GBP?

Equity indices moves sharply higher this Thursday on exchange of trade talk between the US and China that could offer some hope that the new tariffs could be delayed. China said it was ready for talks with the US and there was a hint that any retaliation from the Beijing would not be immediate but at this moment there is still no decision on a possible delay of the new US tariffs. Nonetheless, investors look forward to such decision with DE30 (+1.2%) surging to the key resistance of 11850 points, ITA40 (+1.9%) advancing even more on a delay of early elections and US markets adding between 1.2% (US500 and US30) and 1.6% (US100).

These gains were threatened heading into the European close after some hawkish comments from ECB’s Knot. The voting member on the Governing Council appears to be reigning in expectations after some dovish comments from his colleagues. Perhaps the most stand out was the explicit statement that market expectations were “overdone”. Initially this caused a swift drop of almost 100 points on the Dax while both the Euro and European bond yields spiked. However, these moves have proved short-lived so far and at the time of writing have pretty much been erased back to where they were before the remarks. 

More and more often we are hearing about the need of launching a stimulus programme in Germany. Peter Altmaier, the German Economy Minister, has proposed a measure today that could help alleviate the impact of economic slowdown on small- and medium-sized companies. The German politician proposed cutting corporate tax rate to 25% for those companies (above 30% now). A point to note is that such companies are the backbone of the German economy as they account for around 60% of all jobs in the country. However, Altmaier did not provide any information on how the move will impact the government's revenue. Altmaier, a CDU politician, is in talks with Olaf Scholz, the German Finance Minister and SDP leader, in order to secure support for the idea from the coalition party.

Our stock of the week is Duke Energy with our in-depth analysis focusing on the stock after it recently surged to fresh all-time highs. Read more here. 

Wednesday was a turbulent day for UK politics, even against the country’s own lofty standards as PM Boris Johnson caused outrage by announcing plans to shut down parliament for five weeks. The act of proroguing, or suspending, parliament is common and occurs regularly to mark the end of a session but the timing of this decision is conspicuous to say the least. Despite the fact that the current session is the longest in over 400 years, the move from the PM is clearly a political play and essentially an act of throwing down the gauntlet and daring opponents to vote down the government. Read our market alert in full here.