Cautious Optimism.

Although US stocks held onto sizable gains to start the week, the rally wasn’t as inspired as it might have been if you’re inclined to believe the trade truce struck in Osaka over the weekend marked a turning point in Sino-US relations.

Some hoped Donald Trump’s Huawei relent would help turbocharge things and, in certain corners of the market, it did. Semis soared (the SOX is now just ~6% from its record high, which is pretty notable considering May was the worst month for chip stocks since the crisis) and tech outperformed.

But broader market gains were more muted, even as the S&P did ride the trade truce bump to a third consecutive daily gain. ISM was something of a relief, falling less than expected to 51.7 in June. Still, new orders fell to 50, on the brink of contraction, and the global picture was dismal. “Out of manufacturing PMI releases from 22 economies that are larger than $375 billion, 21 of them saw a decline from the prior reading”, Bloomberg’s Mark Cudmore wrote, prior to the release of the US data.

Meanwhile, the dollar had its best day since April, and gold the worst session in a year. Obviously, gold was due for a breather, but on the greenback, you’re reminded that risk assets really need a weaker dollar from here. The ingredients are in place (a Fed that’s set to cut rates, a US economy that looks ready to finally roll over and falling US yields), but Monday was a rather stark reminder that with the US still looking “good” economically compared to the rest of the world, the “cleanest dirty shirt” dynamic likely means the dollar’s decline won’t be a one-way trade.

Oil was up overall, but spent the day drifting steadily lower as OPEC+ headlines crossed at regular intervals, as they’re wont to do on meeting days. The production cuts were extended, but that was a foregone conclusion. Putin announced it over the weekend at the G20. The only “drama” was the debate about the length of the extension – it will be nine months. Cartel ministers did manage to reach an agreement on a charter for long-term cooperation with non-OPEC members after wrangling with Iran.

Read more: Putin, MBS Agree To Extend Oil Output Cuts, Making OPEC+ Meeting A Formality

Ultimately, the mood was one of cautious optimism to start the week, as markets continue to wrestle with the interplay between flagging global growth, expectations for central bank easing (the RBA is up to bat) and a tenuous ceasefire on the trade front that includes no actual tariff relief.

One thing’s for sure, nobody wants a replay of what happened after trade truce version 1.0…


Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

NEWSROOM crewneck & prints