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Good morning. Optimism for a U.S.-China trade deal seems to be fading, traders are awaiting the accompanying volatility and Nigel Farage is causing headaches for the U.K. government. Here’s what’s moving markets. 

Erosion of Trust

Another week begins with concerns that the U.S. and China are some distance from agreeing any kind of trade deal. The divide appears to be deep and trust has been eroded between the two sides, meaning any short-term prospect of a deal appears remote. President Donald Trump took to Twitter once more over the weekend to tell China to get a deal done now because, he predicted, the terms will be a lot worse after he wins re-election in 2020. Indeed, imposing the tariffs is a big, high-stakes bet by Trump that the U.S. economy is strong enough to handle a trade war, even as White House economic adviser Larry Kudlow says the tariffs will hurt both sides.

Awaiting Volatility

The extra bout of weekend tweeting by Trump has traders anticipating another wave of market volatility to come as traders flee higher-risk stocks for the safety of the dollar, gold, Treasuries and the yen. Some, however, think stocks are set for a period of exuberance. Investors are also scrambling to understand the new playbook, namely how much of the escalation in tensions has been priced in and how much more needs to be taken into account. Bets on a Federal Reserve rate cut have gained momentum again, too, as has short-selling crude oil futures as the trade concerns darken the outlook for that market.

Farage Headache

Theresa May had absolutely no desire to fight the European Parliament elections and will surely not welcome the extra pressure brought by polling showing Nigel Farage’s Brexit Party surging. Talks between the Prime Minister's Conservatives and the opposition Labour Party are due to start again, with no sign of any compromise emerging thus far, though currency strategists think there is a cheap chance to snap up some pound volatility and bet that a deal will get done eventually. Businesses, meanwhile, are quite a bit less sanguine, as are London homeowners.

Uber’s Flop

Cue the jokes about no surge pricing for Uber Technologies Inc. The ride-sharing firm's IPO, the year's most anticipated and largest, flopped on Friday and put a halt to those trying to figure out where to add a ‘U’ to FAANG. Its CEO was defiant and said those in it for the long-term won't regret it. Uber’s second day on the market will be very closely watched. In Europe, financial firm Finablr is said to be struggling to attract the demand for its planned London listing.

Coming up...

Asian stocks dipped and the yuan fell amid the trade tensions and as a formal retaliation from Beijing to the U.S. tariffs is awaited. Commodities also slipped and the safe-haven yen edged higher. Bitcoin, meanwhile, is having another surge and topped $7,000. Any reason remains elusive. It’s a relatively quiet day for earnings, topped by U.K. energy firm Centrica Plc. European foreign ministers will meet in Brussels and two Fed speakers, Eric Rosengren and Richard Clarida, will be taking part in an event in Boston.

What We’ve Been Reading

This is what’s caught our eye over the weekend.

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