Market Overview
The signs of slowing economic activity arising from the US/China trade dispute continue to show. Friday’s disappointing jobs report from the US reflected a lower jobs number and less wages showing economic drag. However, also this morning,
Chinese trade data has shown the strain. A larger than expected drop in May’s Chinese imports shows the strain that the domestic economy is facing and will feed through to concerns across supply lines. Although Chinese imports were slightly higher and better than expected, this was likely to have been artificially boosted by attempts to front run increases in US tariffs. However, market expectations are pretty low surrounding the trade story right now.
It means that any news that hints at an improvement in the trade story will be met risk positive but also (for now) dollar positive reaction. One such positive move comes as the US has delayed imposing tariffs on Mexico over immigration concerns. Markets are having to now reassess expectations of an extremely tough to determine US trade policy.
The Chinese yuan is under pressure from the rather pessimistic view of reasons behind the improvement in the China trade surplus today, but also something that is strengthening the dollar across the majors too. With better risk appetite today, gold is unwinding whilst equities are climbing again. For how long, could be dependent upon the next episode of US trade rhetoric.
Wall Street closed higher again which is the fourth consecutive strong session on the S&P 500 which was +1.0% at 2873. With US futures another +0.3% this morning, Asian markets have had a strong session with the Nikkei +1.2% whilst Shanghai Composite was +0.6%. European markets are looking well set at the open with both FTSE Futures and DAX futures around +0.6% higher in the early moves.
In forex, there is a broad rebound in USD, whilst also a nod to the Chinese trade data too. The dollar is broadly stronger this morning, looking to reclaim Friday’s payrolls related losses, whilst AUD and NZD (commodity currencies) are weaker in light of the disappointing Chinese imports.
In commodities, the dollar strength is weighing on gold and silver (both around -1%), whilst oil is holding the recovery gains (oil fell sharply on the previous deterioration in the US/Mexico relations).
Traders will be on the lookout for a clutch of UK economic data this morning. UK monthly GDP for April at 09:30 BST is expected to be taken back to +0.4% on a three month basis (+0.5% last month). The UK Trade Balance for April is also at 09:30 BST and is expected to improve slightly to -£12.8bn (from -£13.7bn in March). UK Industrial Production is expected to drop back to +0.7% for the year in April (back from +1.3% in March).
Into the afternoon, the focus switches to the US and the JOLTS jobs openings at 15:00 BST for April which are expected to improve very slightly to 7.50m (from 7.49m in March).