Easing Trade Fears Provide Boost Ahead of US GDP

Markets buoyed by easing trade war risks

European markets are trading in the green once again on Friday, with futures pointing to a similar open in the US, as an apparent easing in trade tensions between the US and European Union boosts risk appetite.

While only the outline of an agreement on trade between the two – which account for more than half of global GDP – was released, it was widely viewed as an important first step towards more cooperation and closer ties, and away from protectionism. For Donald Trump, the concessions offered by the EU represent an important victory at home ahead of the midterm elections – although the real benefits of them may not be known for some time.

Juncker on the other hand will be a relieved man, returning to Europe having avoided tariffs being imposed on the auto industry and with apparent assurances both sides will work towards removing those already imposed, while lowering other tariffs and non-trade barriers in the future. This was also ultimately the goal of Trump as well when imposing the tariffs so both will feel they have come out of this better off.

U.S dollar firmer on GDP expectations

Strong week of earnings despite Facebook horror show

Ultimately, the biggest winner here may be investors as the meeting now potentially sets a precedent for how other trade conflicts can be resolved, although the feud with Beijing is more complex and may take much longer to repair. The protectionist measures adopted by Trump as a tool to fight other countries on trade – and then by those countries in retaliation – have weighed on markets since the start of the year, keeping the S&P 500 and Dow off their highs despite companies having reported huge earnings growth – primarily driven by tax cuts – in the first two quarters.

It’s been a big week for earnings season, with a third of S&P 500 and Dow companies reporting on the second quarter. While the general trend has remained, with companies reporting strong figures, it hasn’t passed without its casualties, with Facebook closing almost 20% lower yesterday after reporting disappointing numbers and forecasts. Today is looking a little quieter on the earnings front, although there are still 18 S&P 500 companies reporting, including Exxon Mobil and Twitter.

US GDP eyed as Trump hopes for more than 4%

On the data side, the US will release GDP figures for what is expected to be a bumper second quarter after a modest first few months of the year. The economy is expected to have grown 4.1% on an annualised basis, which will naturally be championed by Trump as being rewards for his hard work. It will be interesting to see how markets react, should the economy outperform expectations, with the Federal Reserve already on course to raise rates twice more this year.

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Juncker/Trump Meeting Eyed as Tariffs Hit Outlook

Investors look for another boost from earnings

US futures are pointing slightly higher again on Wednesday as indices look to extend the winning streak to three sessions on the back of strong earnings reports.

Investors have been encouraged by the results we’ve seen so far, with lower taxes not the only thing providing a big lift to the bottom line, although they are obviously a considerable contributor. Another 52 companies are preparing to report on the second quarter today, including Facebook, the second of three FANG stocks reporting this week and investors will be hoping for more strong figures after Alphabet’s report was so well received, despite the $5 billion fine that was imposed on it last week.

Trump and Juncker to set the dollars tone

German IFO beats expectations but business worried about outlook

One of the few pieces of data that was scheduled for release today was the German Ifo business climate survey and the results were broadly as expected, with businesses feeling positive about the current climate and anxious about the outlook. Overall, the index fell marginally to 101.7 which was slightly higher than expectations and signals continued decent growth in the eurozone’s largest economy.

The continued decline in the expectations component of the survey is likely being driven by the ever-increasing threat of a trade war, with US President Donald Trump now taking aim at the eurozone as the conflict with China heats up. Germany has been a particular focal point of his attacks on the eurozone, with the country benefiting from a weaker euro which is more a reflection of the region as a whole rather than its own economy.

German IFO Business Climate

German IFO Current Assessment

German IFO Expectations

Juncker heads to Washington in attempt to cool trade conflict

Trump has repeatedly threatened tariffs on the European car industry which would disproportionately hit Germany and is likely factoring into businesses less optimistic outlook. It will be interesting to see if anything can be achieved during Jean-Claude Junckers visit to Washington today, with the European Commission President hoping to convince Trump to drop plans to impose tariffs on the EU, something I am not hopeful he will be able to achieve.

The IFO number did lift the euro in early European trade and it now finds itself around a tenth of one percent higher against the dollar on the day. This comes ahead of the ECB meeting tomorrow, which could be one of the less eventful gatherings after the central bank last month laid out plans for the end of quantitative easing this year and made clear that interest rates will not start to rise until at least the middle of next year. Nothing that has happened since is likely to have changed this view.

Economic Calendar

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Markets get busy week off to weaker start

Trump $500 billion Chinese tariffs threat weighs on sentiment

Equity markets are trading slightly in the red at the start of the week, a reflection of the slightly risk averse tone stemming from the prospect of the trade conflict escalating in the coming months.

US President Donald Trump has continued to double down on threats against China, warning he is willing to impose tariffs on all goods imports which equates to around $500 billion. While this isn’t the first time he’s suggested this, it does seem he is becoming increasingly frustrated with the process and that he is not getting the results he expected when he first started down this path.

Unless the two countries find a solution in the next couple of months, the next $200 billion of 10% tariffs that were revealed recently will likely be imposed which could be met with similar measures on the US, if previous actions and rhetoric are anything to go by. While the market rally has stalled this year, with trade being a major contributor, they have shown a certain resilience, something that may not last once tariffs start to take their toll on the economy, with price increases for consumers sure to have an impact.

DAX under pressure after Trump threatens currency war

Earnings eyed but trade could once again be key

This week is likely to see focus remain on trade, with Trump not one to take a back seat and remove himself from the spotlight. Earnings season could provide a welcome distraction from the political theatre of trade wars but even here it’s going to feature as tariffs will have an impact on the outlooks of a number of companies and investors will be keen to hear their views. Around a third of S&P 500 companies report on the second quarter, including three of the four FANG stocks which will typically attract plenty of attention.

There are also a number of other events to focus on this week including the ECB meeting on Thursday – although this may be more of a low key affair with the central bank having already laid out plans for the next year. Theresa May will also meet with her cabinet on Monday for their final meeting before the summer recess, in which the Brexit white paper may be discussed, given the widespread opposition to it and apparent rejection of aspects of it by the European Union chief negotiator Michel Barnier. Needless to say, with only months to go until exit day, negotiations are not progressing as hoped.

Trade and currency wars a market threat

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Markets higher as earnings season gets underway

Earnings season eyed as trade war fears remain

We’re seeing some risk appetite return on Friday even as concerns about trade remain front and centre and shows no signs of improving.

European equity markets are trading in the green on Friday, taking the lead from the US session on Thursday where tech stocks drove a rally that saw the NASDAQ hit a record high. With earnings season getting underway, investors will be looking for reasons to be more optimistic having spent months reading about the risks that a trade war poses to the economy.

JP Morgan, Citigroup and Wells Fargo will kick things off today and over the coming weeks, investors will be paying close attention not just to the results but also references to trade tariffs and the impact they are expected to have on future results, particularly those that have already been targeted in counter-measures taken or proposed against the US.

DAX steady as investors search for cues

Sterling slips as Trump warns of risks to US/UK trade deal

Trump has very much been in the spotlight this week, attending the NATO summit in Brussels before heading over to the UK to meet Prime Minister Theresa May. As ever, Trump was not afraid to express his views on the UK and Brexit ahead of the visit, warning that a trade deal with the US would not be possible under the model that May is seeking with the European Union, while also expressing his belief that Boris Johnson would make a good PM. This appears to have weighed on the pound in trade on Friday given the complications it could cause May and her team.

None of this will go down well with May – who has previously pushed strongly for this visit despite much protest – and comes at a terrible time for her but as Trump well knows, she is in a very weak position right now and is unlikely to fight back and, more importantly, he wants a Brexit that best suits the US. Whether Trump’s comments give more voice to dissenters among Brexiteers is yet to be seen but it certainly doesn’t help the PM as a trade deal with the US has long been touted as one of the benefits of leaving the EU.

First signs of tariffs impact in China’s June trade numbers

Chinese trade surplus increases as Trump plans more tariffs

Chinese trade data released overnight may be used as a source for Trump’s next attack on the world’s second largest economy, with exports having soared once again – rising 11.3% – increasing the surplus the country has with the US to $41.61 billion in June. While the main reason for such a spike is likely to be exporters front loading sales ahead of the tariffs being implemented, it’s likely that a stronger US economy and weaker yuan is also playing a role.

I expect this will be used as another example of the bad trade policies that Trump has repeatedly references but been unable to so far influence. Trump is attempting to force them back to the table with threats of another $200 billion in tariffs, something that has so far only been met with retaliation from China and others.

Economic Calendar

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Dollar Struggles Despite Fed Optimism

Eurozone Manufacturers Still Extremely Bullish Despite Stronger Euro

It’s been a positive start to trading on the first day of the month, with markets in Europe trading well in the green and US futures ticking a little higher as well.

It’s been a busy morning of economic releases and broadly speaking, the data is very positive for the eurozone economy. The region carried some strong momentum into the new year and the latest manufacturing PMIs suggest confidence in the recovery is showing no signs of faltering. The survey for the region as a whole remained at 59.6, slightly shy of last month’s high of 60.1 while still signalling a strong growth outlook for the sector.

The weak euro has played a big role in the strong performance of the sector which has led many to speculate about whether its resurgence over the last year will hinder output going forward. The survey’s we’re seeing suggest manufacturers are not particularly concerned at this stage and are continuing to see strong demand, despite the 20% increase in the value of the euro over the dollar over the last year. The rise against the pound has been far more modest though.

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UK PMI Slips But Sterling Continues Push Higher

The UK data has been less encouraging as of late and the manufacturing PMI for January was no different, slipping to 55.3 from 56.2 in December. The sector has actually benefited in the post-Brexit world, with the sterling depreciation driving more demand for UK manufactured goods. Unfortunately, it still remains a very small part of the UK economy and the boost seems to be wearing off.

That said, a weaker PMI number this morning did little to shake the pound which is heading back to last week’s highs against the dollar. Cable now finds itself back it pre-Brexit territory, although much of this can be attributed to the greenbacks decline over the last year. The pair found some resistance around 1.4350 but there’s clearly still some bullish appetite there. A break through here could see the pair testing 1.45, which isn’t a million miles from the 2016 highs.

US Data Eyed as Optimistic Fed Fails to Lift the Greenback

The dollar is continuing to have a rough time, even a more optimistic sounding Fed did little to lift the greenback which continues to languish around three year lows. Yields on near-term US debt have risen in the aftermath of the Fed statement, with a rate hike in March now almost entirely priced in and a further two this year around 65% priced in. This would typically be positive for the dollar any gains were short-lived.

There’s plenty more data still to come today, with two manufacturing PMIs from the US as well as unit labour costs, non-farm productivity and jobless claims. Earnings season remains a key focus for investors and some big names are due to report after the close on Thursday, including Amazon, Apple and Alphabet.

Bitcoin Below $10,000 and Looking Vulnerable

Bitcoin is coming under pressure once again today and is trading back below $10,000, a level that has proven difficult to hold below. It’s currently trading down more than 5% on the day though and should we close below here, it could be yet another bearish signal for the cryptocurrency which is already more than 50% below its peak.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.