FTSE lower but US indices head for record highs

In a rare bit of positive news about Brexit the EU’s chief Brexit negotiator Michel Barnier said that the EU is prepared to offer a partnership with Britain "such as has never been with any other third country." This could include economic, foreign and security policy ties but will not involve anything that would weaken the EU’s single market, he said.

The comments indicate that the UK could avoid the worst case scenario – a no-deal Brexit – which has been spooking the market for several weeks now and that instead there is a possibility of a deal before the end of the year.

It remains an open question what kind of concessions the UK will have to make for the deal to be signed. Barnier’s comments were followed up by a similarly upbeat assessment by UK Brexit secretary Dominic Raab who told the Lords EU committee he was confident a Brexit deal was within sight. Though this is positive for the markets it continues to be a political hot potato and could still cause some resistance from the pro-Brexit quarters in Parliament.

The forex market embraced the news helping the pound to jump 1% against the dollar and 0.98% against the euro.

Meantime in the US …

The US economy continued powering higher in the second quarter, growing 4.2% compared with 4.1% in the first quarter. Higher government spending and business investment helped the country’s economic growth as did President Trump’s massive tax cuts.

Corporate profits rose 7.7% over the past year and this was reflected in the strength of all the top equity indices. There seems to be no stopping the US indices at the moment, even with the country’s trade disputes bubbling in the background.

The DJIA traded at 26,151.47, within reach of its all-time high hit in January this year, while the S&P 500 was at 2,909.93, its record high.

A US stock drop pushes oil price higher

Oil prices in London and in New York were also heading for their highest close this year ahead of the Wednesday contract expire. Brent Crude traded up 0.71% and West Texas Intermediate traded up 1.09% following a report showing that US crude supplies declined more than expected last week.

However, US crude supplies have been bouncing up and down ferociously over the past few weeks making it impossible to draw reliable conclusions about the actual state of US oil demand at present. Only a longer view could really put this into perspective.

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