Stocks decline on trade tensions; BOC hikes rates

Summary:

• Equities decline as US impost further trade tariffs on China
• Will corporate earnings overshadow trade worries?
• BOC hike rates as expected
• US inflation rises faster than forecast
• Huge DOE draw but Oil fails to rally

It seems like a few day streak of market calmness is too much for the World nowadays. United States announced another list of Chinese goods that will be targeted by tariffs, this time worth $200 billion. In turn we saw equities move lower during the Asian session with biggest declines observed on the Chinese stock markets. It’s been a similar theme throughout the European cash session, although there has been a bit of an attempted recovery seen since the US entered. 

With trade tensions front and centre of traders minds its important to point out that we are also on the cusp of the start of US earnings season. It has been less than a month since the H&R Block (HRB.US) published its financial report for the first quarter of a year, the last company to do so from the S&P 500 index. However, no later than this Friday major US banks will kick off the earnings season for the second quarter of 2018.

As was widely expected the Bank of Canada have hiked interest rates and a fairly hawkish accompanying statement has boosted the Loonie which is moving sharply higher in the immediate reaction. The bank announced an increase in the overnight rate of 25 basis points to 1.5% which marks the 4th hike in the past year. This appears to have been a positive event for the Loonie, but it should be pointed out that the press conference is still to come.

The latest inflation data from the US has shown a larger than expected increase in price pressures with the Y/Y reading of 3.4% the largest annual gain since November 2011. The reading was above the 3.1% expected and with the core reading also beating forecasts (2.8% vs 2.6% prior) the release could be seen as USD positive. The US dollar had been moving higher on the day ahead of the release but it has fallen back a little since, despite the above forecast inflation data.

The latest crude oil inventory numbers from the DOE have shown a mammoth drop, falling by 12.6M on the previous reading. Compared to an expected print of -4.1M the drop is far larger and also comfortably below the 6.8M seen in last night’s private equivalent, the API release. The drop marks the 4th substantial decline in the last 5 weeks, with the drop today the largest of the lot. Despite the large draw the price of oil has failed to rally and if recent support is broken below then a sell-off may actually ensue.