Will recent market volatility continue?

by David Jones, a Chief Market Strategist at Capital.com

Stock markets have made a very strong start to the week, with both the UK FTSE100 and the German DAX indices both up by more than 2% in mid-morning trade. This hasn’t come as a surprise to weekend news-watchers – it was announced that China and the USA have agreed to not increase trade tariffs for 90 days to allow for further talks. This trade war threat has been hanging over markets for some time and, whilst this announcement only delays the possibility, investors are clearly hoping that some more amenable middle ground will be found over the next three months.

This temporary truce between China and the USA also seems to be feeding through to the oil price, with US crude up two dollars since Friday’s close. Oil traders also have a keen eye on this week’s OPEC meeting, amidst rumours that a supply cut could be coming to try and halt the slide of oil. It has been a remarkable couple of months, with US crude slipping from around $77 a barrel in early October to briefly below $50 last week. There was something of a tug of war between traders over recent days around that $50 mark – perhaps if it doesn’t mark the absolute bottom, it could well be a point that stops any slides in the short-term at least.

For foreign exchange markets, Brexit continues to dominate the euro and the pound. We are seeing what is probably best described as scrappy trade here – up one day, down the next. Given the continued uncertainty at the top of UK politics, another week of rumour and counter-rumour would not be surprising at all. Further volatility but with ultimately no real direction could well be the order of the day for these two currencies.