Markets are heading into the weekend with a green light and risk on. But as usual we should urge caution about the latest moves, which appear built on sand.

The problem with optimists, all bouncy and upbeat, is they’re always setting themselves for disappointment. Bulls, ever the stock market optimists, are such creatures. But one rather feels that disappointment lingers for these Tiggers as the latest bout of trade optimism sparks a rally that is now threatening to morph into a breakout for US equities. We may see further gains before the next report or tweet telling us how far away the two sides remain. It’s set up for disappointment. The only thing for sure is the optimists will keep coming back for more.

In the US the bulls took charge from the get-go and early rapid gains were held all session. The S&P 500 closed 1.3% higher at 2976. Bulls could easily drive this through 3k today although we’d anticipate this won’t give in without a fight.

Payrolls numbers will today be the major risk event. Strong ADP numbers, combined with the upbeat ISM services print, bodes well for another solid reading that will again betray the fact the US economy is further from recession than real and anticipated Fed policy moves would suggest.

Payrolls are seen coming in at 160k. If that transpires it’ll give us hope that – yield curve inversion be damned  – US growth is holding up just fine, thank you. But how does the market react – I mean does the market react based on how the market thinks the Fed will respond? Are we looking at a case of bad news is good news?

Europe was broadly higher yesterday, but the UK was out a limb, not for the first time, as the pound recovered lost ground to push the blue chip lower. Quite apart from the pound and its inverse correlation to UK large caps, investors are taking a long hard look at UK equities in general in terms of their value and attractiveness in the context of Brexit and a possible Corbyn government.

Today European markets were a shade higher but generally close to the flat line and lacking in any real direction. European indices remain broadly trapped in ranges, oscillating between key levels and with no clear trend in play.

In Europe, the data continues to disappoint. German industrial output fell 0.6% in July from the previous month. ECB next week is likely to throw the kitchen sink at this, which ultimately should anchor the euro.

On Brexit…what’s left to say? Boris’s strategy is either genius or a catastrophe. The country may be faced with an election in Oct, perhaps before the EU summit or maybe after. It may crash out without a deal, but at the very least this looks less likely to happen on Oct 31st. Wire reports this morning say Jeremy Corbyn will hold talks today to discuss their approach to the PM’s call for an election.

The apparent ebbing of no deal risk helped sterling but with a lot of the gains produced by short covering it does not seem the market is turning bullish on the pound just yet. Big no deal risks remain. GBPUSD has faced resistance at 1.2350 and we are now witnessing consolidation around the 1.2310 mark for now., testing support on what was the previous swing high.

Oil is largely holding around this $56.20 mark, the resistance level given by the top of our symmetrical triangle formation, with a bit of price action on the upside yesterday as the risk-on mood stoked some gains. Inventory data yesterday was bullish as it showed a 4.8m barrel draw, but as yet we’re yet to see the breakout. Demand worries remain the major drag and no show no signs of going away. The fact that yesterday’s fakeout from this pattern didn’t hold suggests bears can take a bit more and we may well see the pullback to the bottom line trend support.

Gold has pulled back to $1510 as the better US data and risk-on mood weighs and yields climb. There’s a chance of a pullback now to the $1492 support region as we head into the weekend. Bulls will look to regain the $1516 first.