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Worries over mounting trade tensions look set to dominate market sentiment this week after U.S. President Donald Trump raised the stakes in the Sino- U.S. trade war and Beijing pledged to retaliate.
Trade data due out from China on Thursday will be closely watched for signs of the impact on the economy. Investors will also be looking ahead to a fresh round of central bank decisions, following last week’s Federal Reserve rate cut. Fed speakers will also be in focus, as investors try to gauge the future path of monetary policy. Economic data and earnings also feature on this week’s calendar.
Here’s what you need to know to start your week:
1- Central Banks
The central banks of Norway, New Zealand, Australia, India, Philippines and Thailand are all to hold interest rate meetings, with investors watching to see if they follow suit after the Fed’s first rate cut in more than a decade last week.
New Zealand is expected to trim another 25 basis points off its 1.50% main rate and there are outside bets that Australia could even make it three cuts in row having already dropped borrowing costs down to 1%.
India is expected to make its fourth cut of the year too as growth continues to slow there and while Thailand is not expected to move the strength of the baht is clearly causing worries again.
Then there is the outlier Norway. The issue there is whether or not it sets up a September rate hike. It has been flirting with the idea for months but it might decide that now might not be the best time to do it. If that’s the case it will have to massage its message accordingly.
2- Escalated Trade Tensions
Global stock and commodity markets dived deep into the red after Trump abruptly decided on Thursday to slap 10% tariffs $300 billion in Chinese imports, stunning investors and ending a month-long trade truce. China vowed on Friday to fight back.
Investors will be closely watching Chinese data on inflation and trade this week for an update on the health of the world’s number two economy.
Trade data due out on Thursday is likely to reinforce a trend of declining exports and imports, with exports expected to fall 2.2% year-on-year in July, while imports are expected to show a drop of 7.6%.
3- Fed Speak
St. Louis Fed President James Bullard is due to speak on the economy and monetary policy in Washington on Tuesday, while Chicago Fed President Charles Evans is due to deliver remarks the following day.
The U.S. economic data calendar is pretty light, but Monday’s service sector data will give investors some insight into whether the slowdown affecting the manufacturing sector is spreading.
4- European Data
It will be busy week in the Eurozone economic calendar with updated euro zone July services PMIs on Monday and German industrial production on Tuesday, which will help investors gauge the strength of the euro area’s largest economy at the end of the second quarter.
In the U.K., data on Friday is expected to show that economic growth stalled in the second quarter. Economists predict 0.1% growth rate month-on-month and 1.4% on a year earlier. Industrial output is forecast to have shrunk, as is manufacturing.
On Monday, the all-important U.K. services PMI is published for July, with economists forecasting a reading of 50.4, barely above the line of 50 that separates growth from contraction.
5- Earnings Set To Slow
The deluge of earnings reports looks set to slow this week with around 62 companies on the S&P 500 scheduled to report.
Investors will parse earnings from Walt Disney (NYSE:DIS), CBS (NYSE:CBS) and Viacom (NASDAQ:VIA) amid a rising wave of competition in video streaming against market leader Netflix (NASDAQ:NFLX). The results could spark volatility in the so-called communication services sector, which has outperformed since it was overhauled last year.
Energy & Precious Metals – Weekly Review and Calendar Ahead
The U.S. may have some of the most sophisticated early detection systems in the world, but there’s nothing in the entire arsenal that can warn you of an upcoming presidential tweet — and how to deal with it when it lands.
President Donald Trump’s tweet on new U.S. tariffs on China had the market destructive impact of an intercontinental ballistic missile when it landed on Thursday. No one possibly — except the president, of course — knew of the 140-character projectile that was coming. And other than crash and burn their way through stocks and oil, investors had no other plausible reaction.
When the smog finally lifted, U.S. West Texas Intermediate crude lost 8%, marking its worst day since Feb 2015. U.K. Brent oil lost 7.2%, its most since Sept 2015.
But in the strangest of rebounds, the market leapt in the next session itself to recover at least a third of the previous day’s carnage. Therefore, net loss on the week was just under 1% for WTI and 2.5% for Brent. While the recovery left none the wiser, it reinforced what many suspected: that volatility would only get worse this summer.
Gold went in the opposite direction to its cousins in energy, although the rally in U.S. futures of the yellow metal only began after Thursday’s official session and during post-settlement trade, when Trump’s tweet landed. Consequently, Friday’s cumulative 1.8% gain was gold’s biggest since February.
What was so spectacularly different about Trump’s tweet on Thursday — compared with his past threats and action on China — that warranted such a market implosion?
In truth, it wasn’t as much substance or form as it was timing. It has been a while since the president raised the possibility of slapping the balance of China’s $300 billion of merchandise coming into the U.S. with a 10% tariff. And, really, you only need a few weeks for Trump not to tweet about something for it to be regarded “a while”.
What proved to be doom for the bulls — and boom for the bears, of course — was Trump’s timing of his latest missile on China trade. It came on the heels of the Federal Reserve’s now-deemed “widely disappointing” rate cut, accelerating oil’s slide.
Phil Flynn, senior market analyst at the Price Futures Group in Chicago, tried to decipher the trigger for the president’s tweet. “President Donald Trump sent a bold message but it’s not really clear who it was directed to,” Flynn said.
He added: “Sure, you might think it was China. Yet it came just one day after the President criticized Fed Chairman Jerome Powell for not signaling a more aggressive rate cutting posture. And with more Chinese tariffs, that will help the President prove his point. The ten-year treasury yields plunged to the lowest since 2016.”
The Chinese vowed to fight back. “We won’t accept any maximum pressure, intimidation or blackmail,” Foreign Ministry spokeswoman Hua Chunying said.
China, once the top buyer of U.S. crude, had slashed its purchases last year as the trade war dragged on. However, U.S. crude oil exports surged 260,000 bpd in June to a monthly record of 3.16 million as South Korea bought record volumes and China resumed purchases, data from the U.S. Census Bureau showed.
Still, some questioned the direct impact of the new 10% tariff. “Given China has been taking very little U.S. crude year-to-date, we see little scope for the tariffs to directly impact market fundamentals,” RoboResearch Commodities Strategis Ryan Fitzmaurice said in a note.
The U.S. economy expanded by 2.1% in the second quarter, government data showed on July 26, beating economists’ expectations but lower than first-quarter growth. Despite that, there is evidence that the 13-month old trade brawl was taking a toll.
China this week reported slowing manufacturing activity in July. U.S. data showed manufacturing activity also slipped last month to the lowest in nearly three years, while construction spending fell in June as investment in private projects tumbled to the lowest level in 1-1/2 years.
Prior to the Fed announcement, oil prices were on a tear, staging a five-day rally after a strong seventh straight weekly draw in U.S. crude stockpiles. After the Fed’s 25-basis point cut — some were expecting a 50-bp reduction — oil was dragged down kicking and screaming, particularly after Fed Chairman Powell described the cut as a “mid-cycle adjustment” that most likely wouldn’t be followed by more easing.
Adding to the Fed decision, the Wall Street Journal in a headline on Thursday declared that crude was in a bear market, exacerbating the selloff. The Journal cited some bearish predictions from Citigroup (NYSE:C) and JPMorgan Chase (NYSE:JPM) that projected supply growth of roughly one million barrels a day above demand in 2020, that could result in a surplus each quarter next year.
Energy Calendar Ahead
Tuesday, July 6
Wednesday, July 7
Thursday, July 8
Friday, July 9
Precious Metals Review
Gold slumped in Thursday’s official session in New York before a dramatic rebound in post-settlement trade that continued into Friday as President Donald Trump’s plan to hit China with additional tariffs triggered a strong safe-haven bid for the yellow metal.
Gold futures for December delivery, traded on the Comex division of the New York Mercantile Exchange, settled up $25.30, or 1.8%, at $1,457.50 per ounce on the week.
On Thursday, gold prices hit 2-week lows on disappointment over what was deemed an inadequate U.S. rate cut. Analysts had expected the Federal Reserve to announced a series of rate cuts to shield the U.S. economy from slowdown. Such a Fed action would have also led to substantial weakening of the dollar. But the central bank announced just a 25-basis point cut for now and and did not indicate more to come.
“Stating ‘the labor market remains strong and economic activity has been rising at a moderate rate’ the Fed was clearly signaling to the market it should not overprice additional cuts,” Pinchas Cohen, analyst at Investing.com, said., referring to remarks by Fed Chair Jerome Powell.
The U.S. dollar spiked to two-year highs on the back of Powell’s remarks, denting demand for gold and other commodities which are priced in the greenback.
A report released from the World Gold Council on Thursday confirmed a bullish backdrop for gold during the first half of 2019, with demand for the precious metal hitting a three-year high, “largely due to record-breaking central bank purchases.” It noted that the buying came from “a diverse range of – largely emerging – countries.
Precious Metals Calendar
Monday, Aug 5
Tuesday, Aug 6
Wednesday, Aug 7
Thursday, Aug 8
Friday, Aug 9