Equities rise despite another Trump’s tariff threat

Summary:

• Donald Trump threats to raise duties on China if Xi Jinping does not meet with him at the G20 summit in Japan
• Stock markets continue bouncing back, bonds keep unfolding their previous gains
• Australian business confidence surges while conditions deteriorate in May

Trump keeps waging trade war

Equity investors got a reprieve on Monday morning after the weekend’s news from US President Donald Trump about a deal reached with Mexico. Although the gains in equities are continuing on Tuesday morning, we have gotten some reasons to consider before entering the bull market again. Namely Donald Trump threatened to increase tariffs on China if Xi Jinping does not meet with him at the G20 summit in Japan later this month. He told reporters on Monday that duties on the world’s second largest economy could be increased “much higher than 25%” on $300 billion of Chinese goods. He also added that the US “has never gotten 10 cents from China and now it is getting a lot of money from China”. Hence, now it is clear that Trump plans to burden China with new tariffs immediately if there is no meeting with Chinese President Xi. On the other hand, this threat seems to be a bit artificial given the fact that Xi Jinping wants to meet with Trump as well. Nevertheless, it shows the current stance of the US administration suggesting that no concessions will be given to China in the foreseeable future. That means the trade battle may last for weeks or even months before both sides find an appropriate solution. If so, it would weigh on global trade activity which has already taken the brunt of the US-Sino trade dispute. Looking at equity markets globally one may say that so far, so good. The NASDAQ (US100) closed 1% higher on Monday while the SP500 (US500) and the Dow Jones (US30) added a few tenths of a percent. In Asia moods look great as well with the Shanghai Composite surging almost 2%, the Hang Seng (CHNComp) rising 1% and the Japanese NIKKEI (JAP225) going up 0.3%.

The NASDAQ kept surging on Monday continuing its wild rally. Technically the price seems to be en route to the highs seen earlier this year. Source: xStation5

NZD and AUD lower overnight

Looking at the currency market one may notice relative weakness of the Antipodean currencies - AUD and NZD, however, this weakness has nothing to do with risk-off sentiment as the Japanese yen and the Swiss franc are also trading subtly lower this morning. From New Zealand we got the news that the government was considering a conditional ban on the live exports of cattle as one of several options being considered under a review of the trade of live animals. The information should not have a material effect on the cattle market as New Zealand’s beef production accounted for just 1% of the global output in 2017, according to the USDA data. On the other hand, meat is among the top goods being exported in New Zealand, hence it may weigh on growth to some extent. In turn, from Australia we were offered the monthly NAB surveys regarding business conditions and business confidence for May. The former deteriorated to 1 from 3 while the latter improved to 7 from 0. On top of that, one may notice that the US dollar is gaining some ground this morning along with rebounding bond yields. The 10Y bond yield rebounded to 2.15% from 2.08% on Friday as investors shed some safe assets following the US-Mexico agreement.

The Australian dollar is reversing after striking the resistance placed at 0.7020. From this point of view one may suppose that bears could take a stab at pulling the price down toward the lower end of the bearish channel. Source: xStation5

In the other news:

• BoE does not have to wait until all political uncertainty around Brexit is resolved to raise interest rates, BoE Saunders said on Monday

• Japan’s money stock (M3) rose in May to 2.3% YoY from 2.2% YoY

• There will not be a corrective budget, Italy’s Salvini said after the meeting with Conte

• China is to announce a cut of gasoline prices on Wednesday