Optimism around US-China trade talk was reflected last week with higher equities globally (S&P500 +2.24%, SX5E +1.56%, NKY +0.2%, SHCOMP +0.2%).
There’s a slight divergence however in the macro space where traders were seeking more confirmation from Trump on actual deals rather than promises that could be easily unwound as it was in the past.
Lower China’s manufacturing PMI still weighed on the investment mood in Asia, while we are still seeing some capital outflow from countries like India (despite its currency is at the strongest level for at least 3 months after its government announced intention to sell bonds in foreign currency).
The picture was really mixed in the FX spaces as the US Dollar index (DXY) dropped below and bounced back above its 200-MA, as traders were seeking any hints to play the next USD trend.
Despite weaker US ISM PMI number, Non-farm payroll came in much stronger to everyone’s surprise at 224K last Friday (160K expected).
Furthermore, wage gain was moderate and the slight increase in the unemployment rate was due to higher participation. This all points to strong economic indicators! US10yr yield immediately jumped and closed convincingly above 2pct.
Oil futures are higher and gold futures continue to grind lower from its recent peak. So how things are going to play out from here – probably the safer way is to assume a cautiously optimistic stance towards global growth. This means we may see normalization on defensive stocks such as consumer staple/health care towards growth cycles such as financial and technology sectors.
The price actions suggested that US yield and Oil prices will be supported for the time being. We saw US stock’s future dropped slightly, but this is more due to apprehension around the Fed’s rate decision (in case the Fed becomes hawkish again).
But with some pressure from Trump, the market still priced in a cut in July. Also as summer starts to kick in, we may see thinner liquidity across the board this month. Next week, all eyes will be on US CPI to gauge its economic strength and anticipate the Fed’s next move.
