Weekly Market Overview

Week of July 1st, 2019

Market focus was glued to this past weekend’s G20 meeting on the sidelines between Trump and Xi, and the outcome boosted market optimism and sent equities higher as of this morning. A truce in the trade war as negotiations restart certainly affirms that optimistic outlook, though the absence of an agreement means upside momentum in riskier assets should be limited, while losses in safe haven products potentially recoverable. In terms of Fed rate cut likelihoods for July, a more modest 0.25% cut is still on, with a 0.5% cut unlikely given the reduction of trade risks. Another item out of this weekend’s G20 summit was oil majors’ Russia and Saudi Arabia agreeing to extend OPEC+ oil output cuts, rendering OPEC’s meeting today and OPEC+ tomorrow of little use in terms of its effect on energy markets which priced in both the supply decision and trade truce. While that will keep supplies narrow and a trade truce aiding energy demand, geopolitical tensions that have been shelved over the weekend with attention on the summit have yet to subside and could yet test energy markets by keeping prices bid.

This week’s economic calendar starts with manufacturing PMI figures that are expected to remain in sub-50 (contractionary) territories, with service PMI figures released on Wednesday. In between, the Reserve Bank of Australia is set to cut interest rates by 0.25%, though the aussie could still benefit from improved trade optimism and hence an unchanged monetary policy still remains a significant possibility as the proxy and high-beta currency gets thrown a lifeline. The key item however, will be this Friday’s US Non-Farm Payrolls report. It’s no secret that US data has been disappointing as of late, with ISM-Chicago’s PMI figure contracting for the first time since January of 2017, durables contracting, and CB’s consumer confidence figure dropping. Last month’s mere 75K NFP increase was well-noted, and expectations this time around are for a more reasonable 164K rise. ISM’s manufacturing and non-manufacturing PMI releases will be viewed in the context of weaker data, and Fed rate probabilities are set to respond accordingly, with Fed Fund Futures only just showing three rate cuts by the end of 2019.