By Lorcan Roche Kelly
Talks to resume
President Donald Trump declared that the U.S. is winning the trade war after he reached a temporary truce with Chinese President Xi Jinping. Trump said he would hold off imposing tariffs on an another $300 billion of Chinese goods and would delay restrictions on Huawei Technologies Co., letting U.S. companies resume sales to China’s largest telecommunications equipment maker. Investors welcomed the truce and the promise of new talks, while warning that any lift in asset prices might be short-lived as the underlying conflict remains unresolved.
Crude bulls are getting a double helping of good news: the trade detente and expectations that OPEC and its allies will agree to a long extension to production cuts as they gather in Vienna. Adherence to the output curbs remains high, with production dropping again in June, the seventh consecutive month of falls. A barrel of West Texas Intermediate for August delivery jumped as much as 3% this morning, adding to its 11% gains over the past two weeks.
While headlines on trade are good news, there are more signs emerging of the damage already done by the uncertainty caused by the standoff. China’s Caixin manufacturing PMI, which is weighted toward the private sector, fell to 49.4 in June from 50.2. The weakness in Europe’s manufacturing sector continued with PMI falling to 47.6 in the euro-area, and hitting the lowest level since 2013 in the U.K. Morgan Stanley downgraded its forecast for global growth saying the truce reached at the G-20 isn’t enough to lift uncertainty.
Overnight, the MSCI Asia Pacific Index climbed 0.8% while Japan’s Topix index closed 2.2% higher with electronics makers proving the biggest boost as the yen fell against the dollar. In Europe, the Stoxx 600 Index had gained 0.8% by 5:50 a.m. Eastern Time with miners among the best performers in a broad-based rally. S&P 500 futures pointed to a decent pop at the open, the 10-year Treasury yield was at 2.021% and gold dropped.
Markit’s U.S. manufacturing PMI for June is published at 9:45 a.m., with ISM June manufacturing and May construction spending at 10:00 a.m. European Union leaders continue their discussions in Brussels as the top jobs up for grabs are argued over. One outcome that is looking increasingly likely is that the European Central Bank may get its first female head, although that decision may be pushed to September.