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Trade war sabres rattle the market

Worry worry worry

There were not many economic statistics on Monday but there was no shortage of things for investors to fret about. Sabotaged tankers , retaliatory Chinese tariffs and falling equity prices all played a part. Sterling and oil retreated together as global economic and domestic Brexit concerns coincided.

The story about "sabotaged" tankers near the Emirate's oil terminal at Fujairah sent oil prices higher in the early part of the day. After lunch that move was reversed when China announced increased tariffs on $60 billion of US goods in response to America's escalation last week. The US administration responded with a list of 3,800 further Chinese products under consideration for the 25% levy.

A possible extension of the trade war to cover more consumer goods worried investors, who feared that it could have a direct impact on household spending in the States and China. Share prices took another downward turn, this time accompanied by oil, which would be in less demand were the global economy to be affected. Expectation grew that the Federal Reserve will cut rates at least once this year.

Sterling slips with oil

Unusually, the path of sterling against the dollar (Cable) mimicked the trajectory of WTI crude.  Both firmed during the morning and began to fall out of bed at around half past two as risk aversion took hold.  The two bottomed out at six in the evening.

The pound's problem was compounded by a technical - chart - pattern known as a "head and shoulders". A break of the shoulder line left investors with an open goal on the downside and they piled on the pressure. Sterling was the weakest among the majors, sharing last place with the Australian dollar, which was directly affected by the risk-off mood because of its trade reliance on China.

For the second time in three days the safe-haven Swiss franc led the way, adding 0.8% against the pound for a weekly gain of 2.2%. The yen and the euro shared second place with gains of 0.5%, half a euro cent. The US and NZ dollars together with the Swedish krona took joint fourth.

UK jobs

Monday's ecostat agenda was a non-event, with no statistics released during the London session. Today's should be more productive. UK jobs and earnings share top billing with German and Euroland investor sentiment.

Figures released ahead of London's opening showed a deterioration in Australian business confidence and unchanged inflation in Germany and Spain at 2.0% and 1.5% respectively. Swedish inflation is forecast to come in at 2.0%.  

UK unemployment is expected to be steady at 3.9% with an extra 24k jobless claims. In recent months investors have been more interested in average earnings than in the number of people in work. The projections for today are that total earnings growth slowed from 3.5% to 3.4% with earnings ex-bonus slowing from 3.4% to 3.3%. ZEW's surveys of economic sentiment and current situation are both supposed to have improved by a couple of points in May, though for Euroland as a whole the reading is expected to decline from 4.5 to 1.0. The US figures this afternoon are of no real importance.

GBP: In joint last place following technical drop

GBP: In joint last place following technical drop

USD: Rate cut priced in for this year

USD: Rate cut priced in for this year

EUR: Improved German sentiment expected

EUR: Improved German sentiment expected

CHF: The safe-haven of choice

CHF: The safe-haven of choice

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