Cross-party Brexit talks resume with fresh impetus

Summary:

• Tories and Labour resume talks after local election drubbing

• GBPUSD pulls back to $1.31 handle

• FTSE sensitive to US-China trade tensions

The pound ended last week with a flourish on raised hopes of a cross-party Brexit breakthrough, but the currency is pulling back a little in recent trade and the coming days could well prove pivotal, both on this and also the trade tensions front. The results of last week’s local elections were nothing short of disastrous for not only the Tories but also Labour with the leading parties receiving a drubbing at the ballot box. The contrast between this and 2017 is even more stark with the two parties accounting for over 80% of the vote at the last General Election and not much more than half this time around. While it is true that local elections often see poor performance for the government and a greater proportion of votes for smaller parties, this is still a clear rejection of both the Tory and Labour approach to Brexit. With this in mind, the cross-party talks that have been carried out for several weeks will now have a greater impetus with both sides eagerly searching for a much needed victory.

GBPUSD ended last week strongly with the market enjoying a strong rally on Friday. However price has pulled back since then and traders will no doubt be keenly following the latest developments on the Brexit front in the coming days. Source: xStation

An agreement around a “temporary customs union” could satisfy both sides and allow PM May to get her withdrawal agreement through parliament in what would be good news for the pound. Even though the current Brexit deadline has been pushed back until the end of October, there are just over 2 weeks before EU elections and given the results from last week, a failure to make progress in the coming days could well see both the Tories and Labour receive another harrowing election night.     

Trade threat looms over stock market rally

Alongside the U-turn in Fed policy, the most significant contributing factor to this year’s bull market run in equities appeared to be raised hopes of a de-escalation in the US-China trade tensions with positive noises coming from both sides and the US even delaying the implementation of higher levies. However, these hopes were dashed on Sunday when US president Trump took to Twitter to threaten additional increases on the existing tariffs in just a matter of days and stocks are now in very real danger of facing a significant headwind that would make further advances very hard going indeed. The latest move could well be a negotiating ploy from Trump, with the aim of squeezing further concessions from Beijing but the US president is playing a dangerous game that could backfire spectacularly. The FTSE has reopened this morning after the long weekend and a meagre decline of just under 20 points fails to reflect the sharp moves seen in other stock benchmarks while the UK was closed.

The FTSE is fading after attempting to push higher this morning with the market touching its lowest level in almost 6 weeks. The 8/21 EMAs are on the verge of printing a bearish cross and a drop below the 23.6% fib at 7300 would pave the way for further downside towards the 38.2% at 7154. Source: xStation