Market outlook for June

It might have been hard to imagine that trade tensions would return so soon for markets. But here we are a worried about the impact of the latest trade escalation between US and China.

Feeling the tensions yet?

From what the headlines are suggesting, the lack of communication between the two parties had certainly served as a jarring prompt that the impasse between the two countries may sustain for some time to come.

More importantly, however, it is the economic impact one might have to grapple with as we head into June to look back at May’s performance. The US 10-year treasury yields had notably declined to levels not seen since September 2019, driven by the search for safety. Meanwhile the US 3-month/10-year yield curve had also returned into a state of inversion as one would recall the bout of recession concern that had brought about in March. May’s economic indicators are due to stream into June slowly, and the reflection of the trade impact could bring about another round of concerns, one to watch.

Moving into June, the US-China trade tensions would likely remain the biggest threat for markets throughout June. The US is expected to hold China tariffs hearing on June 17, ahead of the G20 meeting in Osaka on June 28 and 29, where a meeting between Presidents Donald Trump and Xi Jinping is still uncertain at the time of writing. These will be the various nodes where the market may find heightened sensitivity in terms of risk sentiment. Watch the likes of US Treasuries, USD/JPY and gold.

Besides the above, a couple of central bank meetings will be lined up. The June 4 Reserve Bank of Australia (RBA) meeting had investors see a cut in interest rates to 1.25%. Little changes are anticipated from the likes of the June 6 European Central Bank (ECB) meeting or the June 19-20 Bank of Japan (BOJ) updates, but the June 18-19 Federal Open Market Committee (FOMC) meeting could shake things up for markets. Against the current backdrop of trade tensions and growth concerns, the market is pricing in approximately 80% change of a cut in rates by year-end. The lack of a dovish tinge here may well see to concerns piling in.

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