Stocks jump on raised hopes of US-Chinese trade breakthrough

There’s been another leg higher for global stock markets in recent trade after comments from both the US and China have raised hopes of a de-escalation in trade tensions between the world’s two largest economies. The FTSE 100 is up by around 50 points on the day with the benchmark hitting its highest level in 3 weeks and the market is on course to post a solid week of gains. The pound is fairly mixed after some sizable gains yesterday with the sterling rate against the US dollar posting one of its biggest jumps on Thursday since the 2016 referendum. The currency remains sensitive to the latest rumour and counter rumour regarding Brexit but the bigger picture appears to be more constructive for both the market and hopes of reaching a deal in the not too distant future.     

Trump talking up his own book?

The latest move higher in equities began when Trump took to Twitter to state that he had just finished a “long and very good” conversation with President Xi Jinping of China with a “heavy emphasis on trade.” Not long afterwards Xi was quoted in his state media with positive remarks and further reports overnight that Trump had asked his cabinet to draft terms for a possible trade deal attracted more buying pressure and sent US stock futures to their highest level of the week. While this rhetoric is pleasing it should be acknowledged that nothing has actually changed on the trade war front, and while the noises coming from both Washington and Beijing are no doubt more upbeat, there remains some way to go before a deal is reached.

The timing of this is also more than a little conspicuous, with the US Midterm elections taking place on Tuesday. Trump has often lauded stock markets gains as a reflection of his economic policy and the recent declines pose an unwanted challenge to that narrative at a particularly sensitive time. Polls suggest the Democrats are the favourites to regain the house, and should they take control of the lower chamber then the bipartisan nature of politics will likely see attempts for further fiscal stimulus from the Trump administration frustrated while also raising the prospect of a Trump impeachment significantly.

UK construction activity picks up

While economic data from the UK has taken a backseat to political developments in recent years as far as the markets are concerned, the latest figures from the construction sector this morning have offered some good news, albeit clouded with some warnings.  A higher level of civil engineering work last month has seen the construction PMI for October rise to 53.2, the 2nd highest level of the year and comfortable above economists’ forecasts of 52. However, concerns for future activity remain at elevated levels with slower new order growth and confidence dipping to a near 6-year low - no doubt due in no small part to the ongoing Brexit uncertainty.