US-China trade concerns resurface ahead of US CPI
Fawad Razaqzada June 12, 2019 12:08 PM
There’s no doubt that risk has been off the menu during the Asian hours and this first half of European session today, due, in part, to renewed concerns over a US-China trade deal. However, it wasn’t a full-blown sell-off with major central banks having turned dovish again and the markets are now expecting a couple of rate cuts from the Fed this year, while China has already been at it with various fiscal stimulus measures of its own.
There’s no doubt that risk has been off the menu during the Asian hours and this first half of European session today, due, in part, to renewed concerns over a US-China trade deal. Global stock indices and US index futures have been on a retreat, boosting the appetite for haven assets such as gold and yen. However, it wasn’t a full-blown sell-off with major central banks having turned dovish again and the markets are now expecting a couple of rate cuts from the Fed this year, while China has already been at it with various fiscal stimulus measures of its own. Investors will be keeping a close eye on the upcoming publication of US consumer inflation data in the afternoon. This has the potential to cause bonds, dollar, metals and stocks to move sharply as it could impact interest rate expectations in one or the other direction.
Sentiment has turned slightly negative again with investors re-assessing the likelihood that the US and China will be able to strike a trade deal in the coming months, while the violent protests in Hong Kong over a proposed extradition bill saw outsized moves in local markets. Trade concerns resurfaced after Donald Trump said he is personally holding up a trade deal with China, adding that he won’t sign the agreement unless Beijing reconsiders the terms negotiated earlier in the year. The US President said: “It’s me right now that’s holding up the deal... we’re going to either do a great deal with China or we’re not going to do a deal at all.” He added that the US “had a deal with China and unless they go back to that deal I have no interest.” This comes a day after Trump threatened to raise tariffs on China if his counterpart Xi Jinping refuses to meet with him at the G20 summit in Japan later in the month. That could lead to the imposition of 25% tariffs or “much higher” on $300 billion of Chinese goods.
But the immediate focus will now turn to the US with the publication of Consumer Price Index later this afternoon. According to Donald Trump, the US has a “VERY LOW INFLATION,” which is a “beautiful thing!” If he’s right, today’s CPI could prompt renewed dollar selling. Well, analysts expect CPI to have eased to 1.9% year-over-year in May from 2.0% the month before, while core CPI is seen remaining unchanged at 2.1% in May.
Weak inflation figures are seen as being positive for stocks because it will mean low interest rates for longer. But given renewed concerns over trade, it will probably take more than just weak inflation figures to keep stocks at these elevated levels, especially as the S&P’s rally looks to have come to at least a temporary halt. The index created another inverted doji candle on its daily chart yesterday, pointing to exhaustion in the rally that took place from when index reclaimed the 200-day average earlier this month. Still, the bears will need to see further bearish price action before stepping in. As a minimum, the S&P will need to break key support around 2878 and hold below it to trigger fresh technical selling. Otherwise, we could see a march towards new record highs in the not-too-distant future.
Source: Trading View and City Index. Please note this product may not be available to trade in all regions.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.