Market participants try to ignore trade war fears but tweets and/or interviews with US President Trump continue to spook them. Over the weekend in a G20 meeting, Mnuchin proposed that all G7 allies drop trade barriers but French FinMIn Le Maire replied “We refuse to negotiate with a gun to our head”.
Themes for the Week:
Trade Wars will remain in focus this week and Trump will meet EC President Juncker on Wednesday in hopes it will be the start of dialogue on various trade issues that will end the tit-for-tat tariff impositions. Market participants are actually expecting more trouble, instead of a resolution. China remains in the spotlight, as a growing number of analysts believe Chinese authorities are allowing the Yuan to weaken as part of its strategy to offset the impact of trade tariffs.
The ECB gathers on Thursday and after the excitement generated at its last meeting, this will also be of great interest to those looking for further guidance. Another question will be about the bond redemptions. So far the ECB seems intent on reinvesting in long-dated bonds, thus keeping the stimulus alive.
Nearly 35% of S&P companies report this week – including tech giants Facebook, Amazon and Alphabet. Despite high expectations coming into the Q2 Earnings season – over 85% of the 15% of S&P companies reporting so far have beaten estimates. However, Q2 results also stream in from big European carmakers Peugeot, Fiat, Daimler and Renault. Earnings growth estimates have all taken a beating on the tariff threats and Trump/Junker meeting will also impact automotive stocks this week.
Data in the week ahead:
The main event for US data in the week ahead will be Q2 Advance US GDP, which is expected to come in at 4.1%.
The main event in Australia in the week ahead is Q2 CPI.
What’s on the radar:
It seems that (finally) FX markets are starting to worry about Trump’s protectionist agenda. JPY was sold into the end of the week and CHF was also bought. USD showed weakness. These current moves are susceptible to headline risk of course (given summer markets/low participation) but going into the week a short USDJPY/GBPJPY stance looks quite decent alongside USDCAD shorts. DAX also looks poised for further losses as the automotive industry weighs.
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