Markets rally on trade deal optimism as pound strengthens

​​​Trade optimism drives sterling above $1.33

​Sterling pushed further above $1.33 against the US dollar as growing confidence in a potential US-China trade agreement lifted risk appetite across global markets. The pound's strength reflected broader optimism that a deal between the world's two largest economies could ease trade tensions.

​The dollar weakened as investors rotated towards riskier assets, with reports suggesting US and Chinese officials had agreed a framework for a potential deal. This development marked a significant shift in sentiment after months of uncertainty over trade relations.

​Currency markets responded positively to the news, with safe haven currencies losing ground. The move higher in sterling also reflected expectations that reduced global trade tensions could support UK economic growth through improved business confidence.

​Online trading activity increased as traders positioned for potential market moves ahead of the expected deal announcement. The pound's rally represented one of the strongest single-day moves against the dollar in recent weeks.

​FTSE 100 poised for gains at market open

​Futures markets pointed to a positive open for the FTSE 100, supported by rising commodity prices as trade optimism spread through global markets. Higher oil and copper prices provided a tailwind for the UK's resource-heavy benchmark index.

​The anticipated gains came after Asian markets hit record highs overnight, with Japan's Nikkei 225 crossing 50,000 for the first time. This positive momentum looked set to carry through to European trading as investors embraced a more constructive outlook.

​Energy and mining stocks were expected to lead the advance, with both sectors benefiting from commodity price strength. The prospect of reduced trade tensions raised hopes for improved global demand for raw materials.

​Market breadth suggested the rally could extend beyond commodity-linked shares. Financial stocks also stood to benefit from improved risk sentiment, while exporters faced mixed prospects given sterling's strength against major currencies.

​Banking sector faces mixed headlines

HSBC revealed it would take an $0.8 billion provision related to litigation connected to the Bernie Madoff fraud case. The charge highlighted ongoing legacy issues facing major banks, though the impact on HSBC's overall financial position remained manageable given its strong capital base.

​Meanwhile, Barclays announced plans to re-enter the Saudi Arabian market with a new investment banking licence. The move represented a strategic expansion into the Middle East's largest economy as the kingdom continues diversifying away from oil revenues.

​The contrasting news flow illustrated the varied challenges and opportunities facing UK banks. While legacy legal issues continued to emerge, expansion into growing markets offered potential for future revenue growth.

​Corporate developments across sectors

GlaxoSmithKline (GSK) secured global rights to a prostate cancer treatment from Syndivia, strengthening its oncology pipeline. The pharmaceutical giant's move reflected ongoing efforts to bolster its drug development portfolio through strategic partnerships and acquisitions.

​Dowlais announced it expected its merger with American Axle to close in early 2026. The automotive supplier's combination aimed to create enhanced scale in a challenging market environment marked by the transition to electric vehicles.

​The Competition and Markets Authority raised limited concerns over Greencore proposed merger with Bakkavor. The food manufacturers' combination faced regulatory scrutiny, though the level of concern suggested the deal might proceed with potential remedies.

​Asian markets hit record highs

​Japan's Nikkei 225 crossed the 50,000 mark for the first time as trade deal optimism drove Asian equities to record levels. The milestone reflected strong momentum across regional markets as investors embraced improving sentiment.

​Reports that US and Chinese officials had agreed a framework for a deal to be signed by President Trump and President Xi this week provided the catalyst. The potential agreement raised hopes for reduced tensions between the world's two largest economies.

​Safe haven assets retreated as investors rotated into riskier positions. Gold fell 1% while US Treasury yields rose, signalling a shift away from defensive positioning that had characterised recent weeks.

​Commodities including copper and soybeans advanced on expectations that reduced trade friction would support demand. The moves suggested investors were pricing in improved prospects for global economic growth.

​Central bank meetings dominate this week

​The Federal Reserve (Fed) is widely expected to cut interest rates by 25 basis points this week, though focus will centre on guidance given the ongoing US government shutdown. Markets have largely priced in the move, with attention turning to the Fed's assessment of economic conditions.

​The European Central Bank (ECB), Bank of Japan (BoJ) and Bank of Canada are also scheduled to meet. No major policy changes are anticipated from these institutions, though their economic assessments will be scrutinised for clues about future policy direction.

​Central bank communications take on added importance given recent market volatility and trade developments. Policymakers face the challenge of balancing growth support against inflation concerns in an uncertain global environment.

​Big tech earnings test market confidence

​Microsoft, Apple, Alphabet, Amazon and Meta are among the technology giants reporting earnings this week. These results will test whether the AI-driven market rally can be sustained by underlying business performance.

​Expectations remain elevated for the megacap technology companies, with investors looking for evidence that artificial intelligence (AI) investments are translating into revenue growth. Any disappointments could trigger profit-taking after strong gains.

​The earnings reports come at a crucial time for equity markets, with valuations stretched in parts of the technology sector. Results will need to justify current price levels to maintain momentum.