Market Talk – June 14, 2019

ASIA / AUSTRALIA:

Chinese Industrial output numbers were released today and show a growth rate of 5%. This is the lowest rate of growth in 17 years, showing the strain the U.S. trade tariffs are likely having on the Chinese economy.

A former Chinese central bank governor has warned that the trade war can cause financial chaos, especially if east Asian countries use currency devaluations as a way to gain trade advantages.

India is preparing to impose tariffs on some imported goods from the U.S., mainly dealing with agriculture products, in a retaliatory measure from the recent U.S. tariffs.

The major Asian stock markets had a mixed day today:

Shanghai decreased 28.77 points or -0.99% to 2,881.97; Kospi decreased 7.74 points or -0.37% to 2,095.41; ASX 200 increased 11.60 points or 0.18% to 6,554.00; NIKKEI 225 increased 84.89 points or 0.40% to 21,116.89; Hang Seng decreased 176.36 points or -0.65% to 27,118.35; and SENSEX decreased 289.29 points or -0.73% to 39,452.07.

The major Asian currency markets had a mixed day today. AUDUSD decreased 0.0048 or -0.69% to 0.6865; NZDUSD decreased 0.0078 or -1.19% to 0.6489; USDJPY increased 0.1800 or 0.17% to 108.5500; and USDCNY increased 0.0071 or 0.10% to 6.9353.

Gold decreased 2.3 USD/t oz. or -0.17% to 1,336.96 and silver decreased 0.07 USD/t. oz or -0.47% to 14.8340

Some economic news:

South Korea:

  • Export Price Index (YoY) (May) increased from -0.4% to 0.4%
  • Import Price Index (YoY) (May) decreased from 4.8% to 4.6%

New Zealand:

  • Business NZ PMI (May) decreased from 53.0 to 50.2
  • FPI (MoM) (May) increased from -0.1% to 0.7%

Japan:

  • Capacity Utilization (MoM) (Apr) increased from -0.4% to 1.6%
  • Industrial Production (MoM) (Apr) remain the same at 0.6%

India:

  • WPI Food (YoY) (May) decreased from 7.37% to 6.99%
  • WPI Fuel (YoY) (May) decreased from 3.84% to 0.98%
  • WPI Inflation (YoY) (May) decreased from 3.07% to 2.45%
  • WPI Manufacturing Inflation (YoY) (May) decreased from 1.72% to 1.28%
  • FX Reserves, USD increased from 421.87B to 423.55B
  • Trade Balance increased from 15.33B to 15.36B

China:

  • Fixed Asset Investment (YoY) (May) decreased from 6.1% to 5.6%
  • Industrial Production (YoY) (May) decreased from 5.4% to 5.0%
  • Retail Sales (YoY) (May) increased from 7.2% to 8.6%
  • Chinese Unemployment Rate remain the same at 5.0%

EUROPE / EMEA:

Two “flying objects” have now been identified as culprits behind the attack on Japanese tankers in the Gulf of Oman on Thursday. The U.S. immediately laid blame on Iran. The Iranian foreign secretary was quick to push away the allegations, and is accusing the U.S. of creating a false flag event to sway public opinion against Iran.

The EU is to make a choice whether to follow the U.S. and abandon the Iranian deal or to help normalize trade with Iran.

European MEP’s have created the biggest far-right group in the history of the parliament as tensions rise within Europe with respect to immigration and nationalist agendas.

The major European stock markets had a negative day today. CAC 40 decreased 8.01 points or -0.15% to 5,367.62, FTSE 100 decreased 22.79 points or -0.31% to 7,345.78, and DAX decreased 72.65 points or -0.60% to 12,096.40.

The major European currency markets had a mixed day today. EURUSD decreased 0.0064 or 0.57% to 1.1211, GBPUSD decreased 0.0080 or 0.63% to 1.2592, and USDCHF increased 0.0055 or 0.56% to 0.9991.

Some economic news:

Germany:

  • German WPI (MoM) (May) decreased from 0.6% to 0.3%
  • German WPI (YoY) (May) decreased from 2.1% to 1.6%

France:

  • French CPI (YoY) decreased from 1.3% to 0.9%
  • French CPI (MoM) (May) increased from 0.3% to 0.8%
  • French HICP (MoM) (May) decreased from 0.3% to 0.1%
  • French HICP (YoY) (May) decreased from 1.3% to 0.9%

Italy:

  • Italian Industrial New Orders (MoM) (Apr) decreased from 2.1% to -2.4%
  • Italian Industrial New Orders (YoY) (Apr) increased from -3.8% to -0.2%
  • Italian Industrial Sales (MoM) (Apr) decreased from 0.40% to -1.00%
  • Italian Industrial Sales (YoY) (Apr) decreased from 1.30% to -0.70%
  • Italian CPI (MoM) (May) decreased from 0.1% to 0.0%
  • Italian CPI (YoY) (May) decreased from 0.9% to 0.8%
  • Italian HICP (YoY) (May) remain the same at 0.9%
  • Italian HICP (MoM) (May) remain the same at 0.1%

U.S. / AMERICAS:

Section 232 of the Trade Expansion Act legally allows the president of the United States to impose tariffs if they are deemed necessary under the threat of national security. Lawmakers are now drafting bills to override this legal loophole, and the proposed changes are receiving bipartisan support.

Senator Pat Toomey (R) and Senator Mark Warner (D) have proposed the Bicameral Congressional Trade Act. Under this bill, the Department of Defense, rather than the Commerce Department, would lead investigations into matters of national security. Furthermore, Congress would have the ability to vote on any actions taken under Section 232 over the past four years. Senator Toomey said he is especially concerned about the tariffs placed on aluminum and steel, claiming they were implemented “under the false pretense of national security.” Senator Warner believes that the tariffs imposed under the Trump administration have “strained our relationship with key allies,” and accused the Trump administration of “stretching the concept of ‘national security’ beyond credulity.”

The Trade Security Act, proposed by Senator Rob Portman (R), takes a less aggressive route. This bill would give Congress the ability to disapprove tariffs. However, Portman’s bill is not retroactive and all current tariffs would remain in play. Portman stated that he has a “broader view of trade,” and seemingly wishes to reign in the power granted by Section 232 rather than dismantle it.

Over 600 U.S. companies signed a letter urging Trump to resolve the trade issue with China. Of those included in the list were Walmart and Target, with many believing that the brunt of the trade issue will be taken on by the consumer. “We encourage the administration to negotiate a strong deal with China that addresses longstanding structural issues, improves U.S. global competitiveness, and eliminates tariffs. We believe this goal can be achieved without taxing Americans,” the letter stated.

U.S. indices traded in a choppy pattern this Friday before closing in the red. The Dow slipped 17.16 points or -0.07% to 26,089.61, the S&P 500 fell 4.66 points or -0.16% to 2,886.98, the Nasdaq decreased by 40.47 points or -0.52% to 7,796.66, and the Russell 2000 declined 13.30 points or -0.87% to 1,522.50.

The Canadian indices advanced this Friday. The TSX Composite gained 62.65 points or +0.39% to 16,301.91, and the TSX 60 added 4.27 points or +0.44% to 976.82.

Brazil’s Bovespa fell 733.64 points or -0.74% to 98,040.06.

ENERGY:

Crude fell back from yesterday’s surge. With Chinese industrial production slowing, the global outlook doesn’t look too bright.

The oil markets had a green day today. Crude Oil increased 0.18 USD/BBL or 0.34% to 52.4870, Brent increased 0.61 USD/BBL or 0.99% to 61.9750, Natural gas increased 0.063 USD/MMBtu or 2.71% to 2.3851, Gasoline increased 0.01 USD/GAL or 0.58% to 1.7305, and Heating oil increased 0.0206 USD/GAL or 1.14% to 1.8261.

Top commodity gainers: Lumber (3.75%), Canola (2.89%), Ethanol (3.81%), and Natural Gas (2.62%). Top commodity losers: Cotton (-1.21%), Coffee (-1.28%), Cocoa (-2.89%), and Oat (-1.48%)

The above data were collected around 14:38 EST on Friday.

BONDS:

Japan -0.11%(+1bp), US 2’s 1.84% (+1bps), US 10’s 2.09%(-1bps), US 30’s 2.58%(-2bps), Bunds -0.24% (-1bp), France 0.09% (-2bp), Italy 2.34% (-3bp), Turkey 17.72% (+29bp), Greece 2.74% (-72bp), Portugal 0.62% (-1bp), Spain 0.50% (-4bp) and UK Gilts 0.84% (+1bp).