Stocks bounce on tit for tat time out

Summary

Stock markets are bouncing during a pause in U.S.-China trade rhetoric.

Green returns

European stocks are posting solid gains with similar demand building in Dow, S&P and Nasdaq contracts. This follows chunks of buying interest in Asia-Pacific shares. It looked very much like bargain-motivated flows juiced by a window of benign currency conditions, particularly in Japan, Hong Kong, S. Korea and Australia where benchmarks all added around 1%. Chinese equities also enjoyed a bounce, though to a lesser extent, with precarious sentiment capping Shanghai and Shenzhen gains as investors read the PBoC stepping in as corroborating a sense of crisis. The central bank recommended a reserve ratio requirement cut—essentially looser policy—after fresh tariff threats.

Impasse

White House rhetoric suggested President’s Trump resolve to pile on duties was being underestimated, backed by a warning that counter-retaliatory tariffs could double to $400bn if Beijing didn’t back down. China’s official monetary response looked defensive, so market reaction had a similar feel. After four sessions of selling though, downward pressure on global shares was either likely to ease off or intensify. For now, opportunism is prevailing. With China and the U.S. having already floated tariffs on almost all of their mutual trade, threats have reached an impasse. The situation remains just as incendiary and animosity is still heightened. However, by default, tit-for-tat has paused and investors are using the hiatus for selective buys.

No respite for sterling, euro

Interest in safety plays is consequently softening, neutralising bids for the franc, yen, gold, bunds, gilts and Treasurys. Yen crosses are being examined, helping USD/JPY settle between 110.13-110.20, after residual selling reached 109.85. The euro and sterling continue to be excluded from the sentiment lift though. They’re about 30 and 20 pips lower at last look. With GBP/USD spot back below $1.32 for five sessions now and another tortuous Westminster vote in later, buyers are standing clear. Labour is urging its MPs to vote against the government as Downing Street attempts to face down the “meaningful vote” model for the final days of Brexit. Mathematics point to defeat if all possible dissenters vote according to known views, but there’s uncertainty over a handful. Wednesday’s weak close just under the half-way point of the late-2017 to early-2018 rise was a final reckoner for many traders. Any forays to the top of this week’s $1.315-$1.319 range are likely to be sold ahead of Thursday’s BoE non-event. EUR/USD’s range is also tightening again after Wednesday’s strong offer just 4 pips from $1.16, where data fuelled selling has been observed in recent sessions. Immigration to Germany is still in the mix. A poll shows few Germans believe Chancellor Merkel can solve a dispute between the CDU and its main coalition partner over her open-door policy at an EU summit on 28^th June.

Iran won’t play ball, at OPEC

Attention will remain squarely on trade, Westminster and OPEC on another day bereft of the kind of macroeconomic releases that tend to centralise investor focus. Only U.S. Existing Home Sales are likely to get a look on a light slate. Preparations for the OPEC meeting at the end of the week are seeing reports emerge from a handful of informal advance discussions. The market is taking the talk with a pinch of salt. Both Brent and WTI contract were about 50 cents higher just now, sufficiently neutral to the notion that Gulf producers disagree with a Saudi/Russia drive to end supply cuts. Iran has come out to declare there will be no agreement this week and its oil minister says he will leave Vienna before substantive non-OPEC discussions begin. Crude oil prices continue to price some form of staged increase, including relaxed compliance.