Market outlook for July

Assessing trade impact on corporates

A year after the first China-specific tariffs were imposed by the US, we will unfortunately still be monitoring the impact of these trade barriers for markets.

US-China trade tensions, the key risk for global equity markets at present, saw some reprieve going into end-June with the G20 Trump-Xi meeting bringing forth a trade truce between the two countries. Further tariffs had likewise been delayed for markets; an item viewed as a potential proponent for the economic recession. Notably, President Donald Trump’s switch in stance on Huawei despite the lack of a blanket ban lift had also been taken in a positive light, altogether providing short-term relief for markets. The lack of a timeline on the tariffs delay, however, continues to outline the uncertainty on this US-China trade issue and the clearance of more of these outstanding issues between the two countries would be necessary to keep the momentum going into July.

Looking at the monetary policy theme that lingered from June, July will also be one to watch what the Fed will do. The June Federal Open Market Committee (FOMC) meeting saw the formal shift against the Fed from one of patience to ‘act as appropriate to sustain the expansion’. At the turn of the month, the market continued to price in at least one 25 basis point cut by end-July, and this will be what the market will be keeping an eye on into the July 30-31 meeting. Prior to the meeting itself, Fed chair Jerome Powell will be engaged in the semi-annual testimony to Congress. Other major central banks meetings in the month include the European Central Bank (ECB) and Bank of Japan (BoJ) meetings on July 25 and July 29-30 respectively. Both of which are nevertheless expected to uphold the dovish stance, in line with the Fed.

While the latest developments in geopolitics will be assessed for central banks’ policy changes, we will also get a glimpse of the impact on corporates with the US Q2 earnings season commencing into July. Citigroup Inc. will kickstart the US banks’ earnings on July 15 while FAANG stocks such as Apple Inc., Alphabet Inc. and Facebook Inc. would shed light into their latest quarterly performance. Amid the on-going trade tensions, it will again be the guidance that could pack a punch for prices and likewise find the impact trickling down to Asia markets.