Risk Off As US-Sino Tensions Rise, PMI's & US Jobless Claims

After an impressive rally in the previous session, investors are pausing for breath on Thursday. Rising tensions between US and China and China and Australia are keeping risk appetite on edge, pulling stocks lower ahead PMI releases and US initial jobless claims.

President Trump escalated rhetoric against China pointing the finger at Xi Jinping for a disinformation campaign and propaganda attacks on both the US and Europe. Whilst Trump playing the blame game with China is nothing news, this is the first time that he has taken direct aim at Xi Jinping. Previously he has always maintained a strong relationship between the two. This change of tone is making the markets sit up and listen. Riskier assets are out of favor and flow into safe havens are on the rise.

GBP Remains Under Pressure

The Pound continues to fall away from Tuesday’s high of $1.2297, dragged lower by BoE Governor Andrew Bailey’s U-turn on negative rates, saying that they are “actively under review” for the first time in in the bank’s 324 year history. Whilst negative rates would encourage the banks to lend more, there is no guarantee that the demand exists. Furthermore, negative rates would exert more pressure on the bank’s already squeezed margins. The bank will likely analyze how other economies have fared under negative rates before taking any decision.

PMI’s Pick Up But Stay In Contraction Territory 

In the UK PMI’s for both the service and manufacturing sectors, due for release today. Analysts are expecting to see an improvement from April’s worst-ever prints. However, given that the lockdown in Britain has only eased very slightly so far in May, activity is expected to have only increased very slightly.

Analysts are forecasting the service sector PMI to increase to 25 in May, up from 13.4 in April. Manufacturing activity is expected to have increased to 36, up from 32.6. The level 50 separates expansion from contraction. A weak reading to pull the Pound lower.

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