Trump’s London calling, US-China trade war worsens, oil smoked
Global stocks were down by around 6% in May – can we get a
better June? The runes are not looking great.
Futures indicate European
shares are lower today as trade tensions continue to mount and investors
exhibit greater fear about the global economy and the risk of recession. Asian
markets were generally lower after a big selloff on Wall Street on Friday that
saw the S&P 500 decline 37 points, or 1.32%, to finish at 2,752.06, below
its 200-day moving average. FTSE 100 held the 7150 level, but this is likely to
get taken out today.
Trade fears are heating up
The trade war is not cooling down; in fact, it
looks like the rhetoric is heating up and further escalation seems likely.
China is raising tariffs on $60bn of US goods in retaliation for tariffs,
coming up with its own blacklist of foreign companies, has accused the US of
resorting to ‘intimidation and coercion’, and begun an investigation into
FedEx. And the Chinese defence minister says if the US wants a fight, they will
‘fight to the end’. No end in sight, and the
chances of a G20 détente are slim.
US stock futures were lower along with oil amid growing
fears about this trade setup. Nothing like progress has been seen re Mexico,
and now the market is dealing with reports that the US has been eyeing slapping
tariffs on some Australian imports, As we noted last week, the escalation last week
with the attack on Mexico – especially as it represented a weaponization of
trade to pursue non-economic policies – represents a major turning point and
could bring others into the fray. Again, the EU
could come under fire soon.
Data overnight has been mixed but still indicates slowdown.
China’s Caixin PMI read 50.2, unchanged from a month before but a little ahead
of expectations. Japan’s PMI has gone negative, moving to 49.8, signalling
contraction. Japanese manufacturing output down for 5 months in a row, while
new export orders fell for the 6th straight month. Japanese
equities were down sharply overnight. UK PMI at 09:30, with the ISM
numbers for the US due at 15:00.
Trump heads to the UK today – unfortunately he’s meeting a
lame duck PM so we can’t expect much of importance. There will be lots of talk
of a trade deal with the US post-Brexit. Harder Brexiteers in the Tory
leadership race are likely to be emboldened. Expect the no-deal talk to
Sterling is sure to be under plenty of pressure until the
leadership race is clearer. GBPUSD remains anchored to 1.26 for now,
having made fresh multi-month lows last week. However, Friday’s bullish
hammer reversal may provide the basis for a short-term rally. Just a hint that
the pound is oversold and could be ready for a wee bounce.
Oil smoked, gold higher
Oil has taken a beating as markets worry more about a
slowdown in global demand than supply constraints. Brent has declined by 10% or
so in just a couple of days and is holding on $61, while WTI is clinging to
$53. Speculators are liquidating long positions wholesale, with Friday’s COT
report showing net longs down by 40k contracts. Net long positioning has fallen
by about a fifth (100k contracts or more) since the late April high at 547.4k.
Stockpiles are at their highest in two years. Speculative
long positions continue to be cut. Supply uncertainty is losing out to demand
uncertainty. Simply put, with OPEC and co curbing output, there is ample excess
capacity in the market should it be needed. 14-day RSI and 20-day CCI suggest
oversold and ready for a bounce, but this is like trying to catch a
Gold meanwhile is picking up safe haven bid
as this decline is not just about valuations but about big fears for the global
economy. The easing off in the US dollar has also supported gold. Having broken $1300 gold was last around $1310, with next
FTSE rebalancing etc
Finally, there’s a fair bit of chatter about the FTSE
rebalancing – will Marks & Spencer survive in the 100? Will
JD Sports be promoted? I wouldn’t get too worked up about it all, even if it’s
good sport. EasyJet likely to go – shares have been hammered but the business
is tightly run and it’s always been one of the smallest in the FTSE 100. MKS
lucky to survive with only the rights issue saving it.
Kier – warning on profits – going from bad to worse after
the rights issue flopped.
Astra – hails Lynparza pancreatic
cancer drug trials success
William Hill – bid rumours
are doing the rounds
Dignity – says it welcomes