Since the beginning of July, the leading international stock market indices have been evolving the same way, trading under significant technical resistance levels. The Dow Jones is trading at its highest level, the S&P 500 is close to its historical record of 3,000 points, while the French index, the CAC 40, is also holding around its highest point this year. 

Currently, indices are being strongly affected by any updates related to the trade tensions between the US and China, the Brexit situation, as well as monetary policy decisions by the European Central Bank (ECB) and the American Federal Reserve (Fed). 

When it comes to trading indices, the best way to be ready is to stay on top of both the news and professional market reports – such as the UFX trading analysis – to be sure you’re not missing great trading opportunities.

Trade tensions

The International Monetary Fund recently cut its forecast for global growth in 2019 to 3.2% (down from 3.3% in April). 

“The principal risk factor to the global economy is that adverse developments – including further US-China tariffs, US auto tariffs, or a no-deal Brexit – sap confidence, weaken investment, dislocate global supply chains, and severely slow global growth below the baseline,” the IMF said. 

While growth is expected to increase next year to 3.5%, it is still below the IMF’s previous forecast of 3.6%. As trade wars have a huge impact on global growth, investments, and business confidence, they play a large part in determining companies’ sales, which influence the value of indices they belong to.

Brexit

New British Prime Minister Boris Johnson is already facing challenges about the kind of Brexit he wants to achieve. EU negotiator Michel Barnier has called his demands – especially concerning the so-called Irish Backstop – “unacceptable”, and Brussels has rejected them out of hand. Barnier also thinks that the European Union should be prepared for a no-deal Brexit, although this is far from the preferred scenario for Brussels. European and British indices will move according to the progress made on the divorce deal.

The ECB & The Fed

Mario Draghi, the outgoing ECB president, has declared that the European Union growth outlook is worsening, and that inflation is well below the institution’s target, suggesting that the ECB could join the Fed in seeking to support global growth amid low inflation. If both central banks are using all “weapons at their disposal” to fight deflationary pressures and support growth, then all asset classes, including indices, will be affected.

Paul Petersen