Market Talk – July 1, 2019

ASIA / AUSTRALIA:

President Trump applauded Prime Minister Abe of Japan saying how excellent the G20 meeting was and mentioning that no mistakes were made. During the weekend he and President Xi met and have agreed to resume negotiations with no further tariffs applied – calling the progress of the talks as “fairly advanced.” This is positive news from the situation but it will be interesting to see how long the truce lasts for – but it was enough to push equity markets up. Meanwhile, hundreds of protestors have stormed a government building in Hong Kong as pressure mounts over the recent Chinese extradition laws. Little was said over the weekend regarding this somewhat sensitive matter as world leaders met at the G20 summit in Japan.

After the meeting, Trump went on to meet with Kim Jong Un in a historic meeting in North Korea with Trump being the first US president to visit the country (de-militarized zone). President Trump says he considers Kim Jong Un to be a friend and praised him for accepting such a last minute meeting.

The major Asian stock markets had a mixed day today. Shanghai increased 66.02 points or 2.22% to 3,044.90, Kospi decreased 0.88 points or -0.04% to 2,129.74, ASX 200 increased 29.30 points or 0.44% to 6,648.10, NIKKEI 225 increased 454.05 points or 2.13% to 21,729.97, Hang Seng decreased 78.80 points or -0.28% to 28,542.62, and SENSEX increased 291.86 points or 0.74% to 39,686.50.

The major Asian currency markets had a mixed day today. AUDUSD decreased 0.0059 or 0.84% to 0.6961, NZDUSD decreased 0.0046 or 0.68% to 0.6671, USDJPY increased 0.5620 or 0.52% to 108.4420, and USDCNY decreased 0.0063 or 0.09% to 6.8617.

Gold decreased 24.2 USD/t oz. or -1.72% to 1,387.61 and silver decreased 0.167 USD/t. oz or -1.09% to 15.1560.

Some economic news:

South Korea:

• Nikkei Manufacturing PMI (Jun) decreased from 48.4 to 47.5

China:

• Caixin Manufacturing PMI (Jun) decreased from 50.2 to 49.4

Japan:

• Manufacturing PMI (Jun) decreased from 49.5 to 49.3
• Tankan Large Non-Manufacturers Index (Q2) increased from 21 to 23
• Tankan Large Manufacturers Index (Q2) decreased from 12 to 7
• Tankan Big Manufacturing Outlook Index (Q2) decreased from 8 to 7
• Tankan All Big Industry CAPEX (Q2) increased from 1.2% to 7.4%
• Household Confidence (Jun) decreased from 39.4 to 38.7

Australia:

• AIG Manufacturing Index (Jun) decreased from 52.7 to 49.4
• Manufacturing PMI increased from 51.7 to 52.0
• Commodity Prices (YoY) increased from 11.5% to 13%

India:

• Nikkei Markit Manufacturing PMI (Jun) decreased from 52.7 to 52.1
• Infrastructure Output (YoY) (May) decreased from 6.3% to 5.1%

Indonesia:

• Nikkei Manufacturing PMI (Jun) decreased from 51.6 to 50.6
• Core Inflation (YoY) (Jun) increased from 3.12% to 3.25%
• Inflation (MoM) (Jun) decreased from 0.68% to 0.55%
• Inflation (YoY) (Jun) decreased from 3.32% to 3.28%

EUROPE / EMEA:

Europe’s agenda for the G20 appeared to be aimed at tackling climate change more than raising political topics. The G20 meeting marked the agreement of the final declaration which requires full commitment to the Paris climate deal. This agreement comes after the US and Europe had a fight over the original Paris Agreement. The new agreement is very similar, although there is a new framework for the US under “agree to disagree.” “We’ve succeeded after days and nights of negotiations to have again, after all, a 19 to 1 declaration, where the 19 signatory countries of the Paris Agreement commit to the same things as we did in Buenos Aires,” Angela Merkel said. “We say that this process is ‘irreversible’ and we say that we have made our commitments [to cut greenhouse gas emissions] and will do a review again in 2020 to see whether we must make new commitments.” The climate change final poll is 19 to 1, with the US the only country to not partake.

An EU summit took place today to try and make all the countries agree who will take the top job from Junker as he steps down. The French and German choice of Frans Timmermans who is seen as a center-left candidate did not go well with the Polish, Czech, and Hungarian “populist” governments. The meeting will carry on tomorrow.

European leaders have resisted calls to start imposing sanctions on Iran after the country said it had for the first time broken the terms of the nuclear deal it signed in 2015. The Iranian foreign minister said today that they have enriched more than the 300kg limit of Uranium. This is intended to put more pressure on Europe as the US have pushed for worldwide sanctions on Iran.

The major European stock markets had a green day today. CAC 40 increased 28.94 points or 0.52% to 5,567.91, FTSE 100 increased 71.87 points, or 0.97% to 7,497.50, and DAX increased 122.58 points or 0.99% to 12,521.38.

The major European currency markets had a mixed day today. EURUSD decreased 0.0080 or 0.70% to 1.1288, GBPUSD decreased 0.0051 or 0.40% to 1.2642, and USDCHF increased 0.0117 or 1.19% to 0.9877.

Some economic news:

Swiss:

• Retail Sales (YoY) (May) decreased from -0.8% to -1.7%
• SVME PMI (Jun) decreased from 48.6 to 47.7

Norway:

• Manufacturing PMI (Jun) decreased from 54.1 to 51.9

Spain:

• Spanish Manufacturing PMI (Jun) decreased from 50.1 to 47.9

Italy:

• Italian Manufacturing PMI (Jun) decreased from 49.7 to 48.4
• Italian Monthly Unemployment Rate (May) decreased from 10.1% to 9.9%

France:

• French Manufacturing PMI (Jun) decreased from 52.0 to 51.9

Germany:

• German Manufacturing PMI (Jun) decreased from 45.4 to 45.0
• German Unemployment Change (Jun) decreased from 60K to -1K
• German Unemployment Rate (Jun) remain the same at 5.0%
• German Unemployment (Jun) decreased from 2.282M to 2.281M
• German Unemployment n.s.a. (Jun) decreased from 2.236M to 2.216M

Eurozone:

• M3 Money Supply (YoY) (May) increased from 4.7% to 4.8%
• Manufacturing PMI (Jun) decreased from 47.8 to 47.6
• Private Sector Loans (YoY) remain the same at 3.3%
• Unemployment Rate (May) decreased from 7.6% to 7.5%

UK:

• BoE Consumer Credit (May) decreased from 0.968B to 0.822B
• M4 Money Supply (MoM) (May) decreased from 0.5% to -0.1%
• Manufacturing PMI (Jun) decreased from 49.4 to 48.0
• Mortgage Approvals (May) decreased from 66.05K to 65.41K
• Mortgage Lending (May) decreased from 4.09B to 3.10B
• Net Lending to Individuals decreased from 5.2B to 3.9B

U.S. / AMERICAS:

As previously mentioned, the G20 summit in Japan appears to have infused optimism and confidence in markets around the world, including U.S. Following the event, President Trump commented that the discussions with China were “better than expected” with both sides agreeing not to increase tariffs for now while they continue negotiations. However, the current tariffs will remain in place. In addition, it appears the U.S. will allow companies to sell their products to Huawei, although the company will still be placed on a temporary ban. China agreed to increase its purchases of American agricultural products as well. “The quality of the transaction is far more important to me than speed. I am in no hurry, but things look very good!” President Trump commented.

Canada’s relationship with China is still strained. China is displeased with Huawei executive Meng Wanzhou’s arrest in Vancouver this past December. Canada is still fighting for the release of Michael Kovrig and Michael Spavor, two Canadian citizens who are being held in China in what many consider retribution for Meng’s arrest. Reports surfacing show that Canada is largely depending on their allies, namely the U.S., to help further ease tensions with China.

In a historic moment (good or bad, depending on how you view it), a U.S. president stepped foot on North Korean (de-militarized zone) soil for the first time. On Sunday, President Trump visited the highly hostile DMZ zone between North and South Korea where he met with North Korean dictator Kim Jong Un. “I never expected to meet you in this place,” Kim Jong Un said. The two discussed denuclearization plans; a conversation that began when they first met last year in Singapore. South Korean President Moon hosted the American delegation and seemed pleased that the U.S. is working to ease tensions with the North. A reporter asked if any of the negotiators from the first meeting with North Korea were still alive, to which he replied, “I think they are.”

U.S. manufacturing strengthened in June after the PMI rose to 50.6 from 50.1 in May. However, the ISM index slowed to 51.7% in June from 52.1% in May.

Although it is unclear which companies will be permitted to conduct business with Huawei, chip manufacturing stocks rose this Monday: Qualcomm (+1.91%), Skyworks Solutions (+6.0%), Microchip Technology (5.42%), and Broadcom (+4.34%).

The S&P 500 hit a record high midday (2,977.93) and closed at a new high of 2,964.33 (+22.57 points, +0.77%). The Dow rose by 117.47 points (+0.44%) to 26,717.43, the Nasdaq increased by 84.92 points (+1.06%) to 8,091.16, and the Russell 2000 advanced 3.09 points (+0.20%) to 1,569.66.

The Canadian indexes advanced on the first day of July trading. The TSX Composite rose 74.47 points (+0.46%) to 16,382.20 and the TSX 60 rose 4.54 points (+0.47%) to 979.60.

Brazil’s Bovespa climbed 372.48 points (+0.37%) to 101,339.

ENERGY:

The WEF released a study showing that the US is also following Europe in pushing more into renewables rather than relying on coal. The EIA report showed that wind, solar, and hydro accounted for close to 70 megawatt-hours compared to 60 million for coal in April. Still, the main resources used are natural gas and petroleum which accounts for more than 50% of the energy used.

The truce between China and the US helped to send the price of Crude higher.

The oil markets had a mixed day today. Crude Oil increased 0.77 USD/BBL or 1.32% to 59.3086, Brent increased 0.46 USD/BBL or 0.71% to 65.1651, Natural gas decreased 0.047 USD/MMBtu or -2.04% to 2.2635, Gasoline decreased 0.0125 USD/GAL or -0.64% to 1.9271, and Heating oil increased 0.0114 USD/GAL or 0.59% to 1.9572.

Top commodity gainers: Lumber (5.41%), Bitumen (4.76%), Cotton (4.88%), and Cocoa (3.10%). Top commodity losers: Live Cattle (-5.84%), Soda Ash (-3.74%), Wheat (-3.08%), and Orange Juice (-2.63%)

The above data were collected around 15:52 EST on Monday.

BONDS:

Japan -0.14%(+2bp), US 2’s 1.80% (+6bps), US 10’s 2.03%(+3bps), US 30’s 2.57%(+4bps), Bunds -0.36% (-3bp), France -0.05% (-5bp), Italy 1.97% (-12bp), Turkey 15.83% (-37bp), Greece 2.32% (-14bp), Portugal 0.42% (-5bp), Spain 0.35% (-4bp) and UK Gilts 0.82% (-2bp).

• US 3-Month Bill Auction increased from 2.085% to 2.145%
• US 6-Month Bill Auction increased from 2.030% to 2.040%
• French 3-Month BTF Auction decreased from -0.559% to -0.564%
• French 6-Month BTF Auction increased from -0.583% to -0.581%
• French 12-Month BTF Auction decreased from -0.592% to -0.626%