Tariffs threats live on

Two steps forward, one step back

After the build up towards talks between US and China, President Donald Trump had once again threatened that additional tariffs could be imposed on China, putting the $325 billion worth of Chinese imports on the table. Arguably this could be positioning by the President ahead of major talks, but it certainly breaks from the improved tone we have had since the G20 summit. In turn, US markets had reacted with a slight pullback overnight, reckoning with the significant uncertainty still on the table.

Conflicting signals for markets

While central banks around the world continue to prop markets up with a collectively dovish tone, there are various conflicting signals that could see to market adjustments going forward. On the first level, the recent set of data across the likes of the US and China contradicts the concerns of growth slowdown. Most recently, the overnight June retail sales release from the US had surprised on the upside at 0.4% month-on-month (MoM) against the 0.1% consensus. The control group, which feeds into the GDP accounting, had altogether surged to 0.7% from the 0.6% prior, reinforcing some signs of stabilization.

On the next level, the mixed economic performance throws a curve ball towards the dovish expectations from central bankers, though the bigger issue on hand perhaps remains one of the effectiveness as the uncertainties cloud the business spending outlook. These will be items to continue monitoring, though as it is, the IMF had certainly made their stance clear in encouraging the readying of stimulus from central bankers amid a ‘sluggish’ global economic situation.

Crude oil prices tipping lower

Meanwhile some signs of openness to talks from Iran as relayed by US secretary of state Mike Pompeo had crude oil prices sinking and energy stocks declining, one to watch going into the Asia session. Brent crude oil prices dipped past its 50-day moving average (DMA) to trade around $64.50 per barrel when last checked, breaking from the short-term uptrend. This was as the private API report reflected a smaller than expected crude draw for last week, adding on the bearishness for crude prices. Look to further pressure here that could build from the dissipation of geopolitical concerns and shift towards supply woes, though one should not rule out further jawboning to come from both US and Iran in the duration.

Source: IG Charts

Asia open

As the market sentiment tips once again towards risk-off on the back of the President Donald Trump’s latest threats, look to the synchronized pressure for Asia markets midweek. Singapore’s non-oil domestic exports arrived this morning being a clear disappointment with the -17.3% year-on-year (YoY) read, the worst seen since Q1 2013. While this is a slightly backward-looking data post the advance GDP release, it continues to paint a picture of the external weakness in the region.

For the day ahead, as the US earnings season rolls on without being a strong catalyst for price movements yet, look to more US data including June’s building permits and housing starts. Bank of America and Netflix earnings are expected as well.

Yesterday: S&P 500 -0.34%; DJIA -0.09%; DAX +0.35%; FTSE +0.60%