Wall Street reactions to China trade escalation marked by fear, uncertainty
“It’s not good, obviously. I think that it really surprised a lot of people and I think it underscores that this is not a problem that’s going to be solved in the near-term…” said Tom Essaye, a former trader who founded “The Sevens Report” newsletter. Click here to read the full article.
What’s in Today’s Report:
Futures are marginally higher again and this morning is largely a repeat of Wednesday morning as a news article that is positive on U.S.—China trade in tone, yet offers no new information, is causing a mild rally.
The South China Morning Post (a government media source) posted an article stating the U.S. and China will reach a temporary trade “truce” at the G-20.
Economic data was sparse and is not moving markets.
Today we do get some notable economic reports, including Final Q1 GDP (E: 3.1%), Jobless Claims (E: 218K) and Pending Home Sales (E: 0.6%).
The GDP report will get the most attention but the claims data is the most important release today, but that said none of these reports should move markets. Instead, we will continue to be glued to the scrolling ticker for any reports or updates on what’s expected at the G-20, as that event continues to hover like a cloud over all markets this week.
What’s in Today’s Report:
S&P futures are rebounding solidly this morning after Secretary Mnuchin reiterated that a U.S.-China trade deal is 90% complete while oil prices surge ahead of weekly data.
WTI crude oil futures are up nearly 2% after the API reported a weekly supply draw of over 7M bbls late on Tuesday which nearly tripled expectations (-2.6M bbls).
Economically, the German GfK Consumer Climate headline fell to 9.8 vs. (E) 10.0 in July, underscoring investor concerns about the EU economy.
After Mnuchin’s comments this morning, market focus has returned to the trade war and investors will be looking for any additional commentary out of Washington regarding the upcoming meeting between Trump and Xi or any other details on trade.
There are no Fed speakers today but there are two economic reports to watch that could potentially move markets, especially given the less dovish Fed speak yesterday: Durable Goods Orders (E: -0.1%) and International Trade in Goods (E: -$71.5B).
What’s in Today’s Report:
Stock futures are rallying towards all-time highs and gold is up nearly 3% while the dollar and bond yields continued to decline overnight as global investors cheered the dovish Fed and rising prospects of a U.S.-China trade deal.
There were no notable economic, central bank, or trade war headlines since yesterday’s close.
Geopolitically, Iran claimed it shot down a U.S. spy drone overnight which triggered a fear bid in global oil prices. WTI is up nearly 3% on the news.
Looking into today’s session, there are two economic numbers due out ahead of the bell: Jobless Claims (E: 219K) and the Philadelphia Fed Survey (E: 11.0) but neither should materially move markets while no Fed officials are scheduled to speak.
Momentum is clearly higher for stocks right now and investor optimism surrounding this week’s dovish central bank developments and improving prospects for a U.S.-China trade deal very well may help drive the S&P to fresh all-time highs today.
“You had a market that became very pessimistic and then all of a sudden we had the Fed’s dovish rhetoric and no…” says Tom Essaye. Click here to read the full MoneyWeek article.
What’s in Today’s Report:
Futures are fractionally higher following a weekend full of articles on trade and the Fed but none of them shifted the current market outlook.
There were multiple stories on U.S./China trade and they were mixed (some positive, some negative). The bottom line remains that the best hope for the G-20 summit is a resumption of negotiations and promises of no new tariffs.
There was no notable economic data over the weekend.
The Fed meeting is just over 48 hours away so barring any major surprises on U.S./China trade, markets should be relatively calm into that meeting.
But, that said, there is an important economic report today, Empire Manufacturing (E: 10.0), which will give us the first look at economic activity in June and this report could confirm or deny the U.S. economy is again losing positive momentum, although it’ll take a big miss or beat vs. expectation to materially move stocks.
Tom Essaye, founder of the Sevens Report Research, partly credited expectations for further economic supportive measures from China for the market’s gains. “Chinese Vice Premier Hu called for more stimulus…” Click here to read the full article.
Tom Essaye quoted in Seeking Alpha. Analysts are also starting to reassess the June market comeback, with some saying it doesn’t quite make sense. “This rally is not fundamentally backed. Instead what we are seeing is a…” Click here to read the full article.
What’s in Today’s Report:
Futures are marginally higher following a busy night of news, but none of it shifted the current market outlook.
If there is a “reason” for the gains this morning it’s hopes for more Chinese stimulus as Chinese Vice Premier Hu called for more stimulus to help the economy, although no specifics were given and China’s already been aggressively stimulating the economy for months – so this isn’t exactly incremental news.
Geo-politically, Brent crude oil surged 3% after two tankers were attacked via a torpedo and mine strike overnight in the Gulf of Oman (near the mouth of the Strait of Hormuz). It’s unclear who is responsible at this point but that’s obviously increasing tensions in an already unstable part of the globe.
The remaining big event for the week comes tonight via the Chinese economic data, so today will be spent watching the headlines for any trade updates, while on the economic front we get Jobless Claims (E: 216K) and Import & Export Prices (E: -0.3%, 0.1%), but neither should move markets materially. Finally, there is a 30 Yr. T-Bond Auction at 1:00 p.m. ET and we’ll be watching to see if there are any signs of a Chinese “buyers strike” for Treasuries (so far, it’s not happening).
What’s in Today’s Report:
Futures are higher as Tuesday’s “squeezy” rally carried over into international markets overnight thanks to the dovish Fed rhetoric over the last 24 hours and a handful of incremental positive macro developments.
Mnuchin will meet with Chinese officials this weekend and there is growing support by Republican Senators to block Mexican tariffs, both of which are trade war positives.
Economic data overnight was mixed but “goldilocks” as EU composite PMIs were largely better than feared, Eurozone Retail Sales were in line with expectations, while inflation statistics came in light.
Today, focus will be on economic data early with the ADP Employment Report (E: 175K) due out ahead of the bell while the ISM Non-Manufacturing Index (E: 55.8) will print shortly after the open.
There is also one Fed speaker: Bostic (9:45 a.m. ET) and if the general tone remains dovish, this week’s short-squeeze in stocks can continue with the S&P approaching the 2850 area.
However, because the macro backdrop has not materially improved so far this week (again the developments have just been “less bad”), it is unlikely at this point that the move is the beginning of a sustainable, longer term rally.