A shocking slide in German manufacturing activity and weaker than forecast French and US manufacturing conditions hammered market sentiment on Friday night. The euro slumped and share markets plummeted despite previous optimism about central bank support. Reactions in industrial commodities were more measured, but crude oil, copper and natural gas all retreated, dragging commodity currencies down.
Asia Pacific stocks are facing steep opening falls, according to futures markets. Both Hang Seng and Nikkei index futures are around 1.5% in the red. The US dollar is now below 110 yen, another factor likely to weigh on trading today.
The key issues of China/US trade and Brexit will re-assert themselves this week. The British will seek a way forward, starting with a proposal that is already subject to multiple amendments. The EU’s conditional agreement to a delay adds pressure to find a majority backed solution that is also acceptable to the EU. The pound gyrated through an extended trading range on Friday night and elevated volatility is expected this week.
On Thursday US negotiators arrive in Beijing for further trade talks. The White House has repeatedly expressed positive sentiments around progress but it is clear that several major sticking points remain. Markets are particularly sensitive to headlines on the subject, and trade is likely to dominate market action as the talks approach.