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Assessing the market optimism

Global equity markets collectively cheered the G20 outcome at the start of the week but may find this optimism cooling into the Tuesday session for markets.

US proposes new EU tariffs

Wall Street surged at the start of the fresh week, no surprise here seeing the likes of the S&P 500 index chalking up a fresh record. This is with cyclicals at the forefront, the IT and financial sectors leading the gains, with the former aided by the surprise news on Huawei from President Donald Trump. That said, the sustainability of this upward movement remains in question with the uncertainty continuing for geopolitical tensions.

As it is, we have seen the latest news of the US bringing forth another $4 billion worth of EU goods for proposed tariffs shining the spotlight on EU-US trade relations. EUR/USD was seen falling into the Monday session though supports comes in fast at around $1.126 that could keep further downsides intact into Tuesday.

Source: IG Charts

PMI numbers suggest weakness

Over and above the trade concerns, the PMI readings out of both US and China had perhaps been evidence that one should contain the optimism despite the trade truce. Both China’s official and Caixin manufacturing PMI had missed estimates with the latter surprising in contractionary territory at a 5-month low of 49.4. Similarly, in the US, June’s ISM manufacturing PMI had slumped to the lowest since late October at 51.7. For China’s data, new orders on both counts of the official and Caixin manufacturing numbers had remained in contraction territory. All of which, paints a picture of continued pressure from the on-going tariffs that have yet to receive respite despite the trade truce.

The implications of the economic weakness seen from these early June numbers on markets would perhaps be one calling for greater caution with the data releases moving forward. The silver lining would be the support expected from the Fed and the Chinese authorities.

Mixed Asia markets

Asia markets can be seen mixed going into the Tuesday session with the markets moderating some of the positive glow after the sentiment-driven trade on Monday.

The wait is on for the Reserve Bank of Australia’s meeting in light of the contemplation as to whether we will be seeing a cut coming through this meeting. The consensus for a cut has seen to the AUD softening ahead of the meeting, one to watch.

Yesterday: S&P 500 +0.77%; DJIA +0.44%; DAX +0.99%; FTSE +0.97%

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