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Conciliatory trade comments soothe market nerves

It remains all about trade as President Donald Trump’s comments on the matter had once again been the primary driver for markets at the start of the week.

Even though the sentiment had taken a positive turn on the latest update, uncertainty nevertheless persists to warrant a more cautious stance.

Doubts persist on US-China trade

Following the sudden escalation in the tit-for-tat tariffs war, it had perhaps once again been a surprise for markets seeing President Donald Trump’s latest conciliatory remarks with regards to US-China trade. The President noted that China had wanted a deal very badly and that the two countries had a call last night to ‘get back to the table’ on trade talk.

While the risk sentiment evidently improved on the back of this development, making a return from the dire state post Friday’s tariffs escalation, there remains doubts with regards to how concrete the latest turn is. Firstly, the lack of confirmation from China had been apparent and China’s state press had also noted discrepancy with regards to phone calls between the two sides. Secondly, in the twists and turns of the US-China trade issue, few may be expecting a straight road towards a deal of late regardless of the type of conciliatory remarks. Lastly, the impact on the economy and thus recession woes remain a function of the time between the present and resolution of the trade conflict and it does appear that the matter may continue to drag. Altogether, this should keep the cautious stance going in the market.

As far as the S&P 500 index’s put-to-call ratio suggests, as highlighted yesterday, the 20-day moving average smoothened line continues to suggest the increase in put protection interests. Prices may have found support once again at the 2819.5 level for the S&P 500 index, but there remains the likelihood that this downtrend would continue. Watch the likes of data this week for leads as well with the preliminary August conference board consumer confidence reading due in the US session for insights into consumption performance.

Source: IG Charts

Asia open

While the abovementioned concerns persist, Asia markets are nevertheless set to find some relief alongside Wall Street. Early movers in the region including the ASX 200 and the Nikkei 225 were both seen in green in the early hours. Look to the rest of the region to see some support in the day, though keeping an eye on US-China trade news flows. Alongside the abovementioned sentiment indicator, the limited reaction in the US bond market whereby US 10-year yields picked up a mere 7 basis points and likewise for USD/Asians continue to paint the picture of caution. USD/CNH, perhaps is one of the most trade-sensitive currency pair at present, notably remained little change around $7.16 levels overnight. Watch also China’s July industrial profits due in the morning.

Yesterday: S&P 500 +1.10%; DJIA +1.05%; DAX +0.40%; FTSE -0.47%

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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