Sterling surges as Brexit deal hopes improve sentiment

US-China trade talks move into second day, with sentiment improving to the benefit of stocks. Meanwhile, the pound is surging, as traders digest the improved tone from UK-EU talks.

• Stocks rise, but US-China trade hopes rest in Trump talks

• Crude on the rise following Iranian tanker attack

• Sterling gains continue as UK-EU talks continue 

European markets are trading in the green as we look to close out the week in a positive fashion. With Trump expected to meet the Chinese Vice Premier today, there is a growing sense of optimism over a potential deal that could at least deescalate the situation by delaying or postponing currently planned tariffs. Suggestions of a currency pact point towards a short-term solution that could appease Trump for now, buying room for both sides to continue negotiating without the threat of the December tariffs hanging over talks.

Crude prices are surging following a missile attack on an Iranian oil tanker travelling close to Saudi Arabia. Following the huge attack on Saudi operations last month, all signs pointed towards this being a retaliation act. While we have seen no confirmation of the assailant, a statement from Iran points towards the possibility that it was not in fact the Saudis who launched the attack. Irrespective of who launched the attack, there is no doubt that geopolitical tension is on the rise in one of the most important zones for crude production and transportation. Today has also seen the IEA monthly report signal expectations for a slower rate of demand growth in 2019 and 2020, with both forecasts being revised lower in response to a continued global slowdown. While recent OPEC figures have highlighted the 1.28m bpd decline in Saudi output in September, there is a feeling that global production will not be as adversely impacted as had first been the case.

The pound has enjoyed an almighty rise off the back of yesterday’s positive statement from Irish Taoiseach Leo Varadkar who points towards a potential pathway to success in talks between the two sides. Rumours of a new treaty to avoid Brexiteer fears of being trapped in the Irish backstop help raise hopes of an eventual deal that could pass in parliament. Todays headlines are likely to be dominated by the outcome from a meeting between Barnier, Barclay and Tim Barrow, as the sides seek to ascertain a pathway to avoid a no-deal Brexit. Meanwhile, with the pound driving higher off the back of an optimistic tweet from Tusk, it is clear that GBP traders will find plenty of volatility given the raft of statements coming out from both sides.