Daily reviews


Global tensions prevent markets from a sustainable advance


S&P 500 rose for second straight week, but added just 0.5%. Most sectors advanced, with consumer discretionary and communication services were leading the gains, while energy shares slipped most.

  • Trump wants either a ‘great deal’ or no deal at all with China
  • The US leader threatens to raise tariffs on China
  • Hong Kong protest against the China extradition bill rattle markets
  • Dollar higher against the majors due to strong retail sales data
  • US inflation weak, points to the rising probability of a Fed rate cut
  • Oil lower for the week despite come recovery

Asian equities

Asian stocks were mixed amid the controversial signals. On the one hand, investors cheered a deal between the US and Mexico. As a reminder, Trump initially posed a threat to implement 5% import on all Mexico imports beginning on Monday should Mexico fail to do anything about tightening its borders. Later, the US leader said that the imposition of the tariffs on Mexico was indefinitely suspended after reaching a signed agreement after Mexico committed to quickly expatiate on an asylum program and assign security forces to manage the course of Central American migrants passing through the U.S. border.

On the other hand, Trump said he wanted either ‘a great deal’ with China or no deal at all, threatening not to complete agreement unless Beijing returns to earlier negotiated terms. Moreover, he has threatened to raise tariffs on China unless Xi Jinping meets him at G20 summit in Japan. Meanwhile, Hong Kong protests against the China extradition bill added to the negative sentiment.

Against this backdrop, the MSCI Asia-Pacific index on Friday ended 0.3 percent lower at 155.21, up 0.6 percent for the week. The Hong Kong stock market on Friday fell for the third straight session and pared of some its weekly gains as China reported lackluster industrial production data. Industrial production rose just 5% on a yearly basis last month, marking the weakest pace of growth in 17 years.

US equities

S&P 500 rose for second straight week, but added just 0.5%. Most sectors advanced, with consumer discretionary and communication services were leading the gains, while energy shares slipped most. Tech stocks edged down 0.2%. Broadcom's $2 bln warning blaming U.S.-China trade conflict pressured chip stocks. At the end of the week, Sentiment on Wall Street was dampened by disappointing industrial data from China. On Friday, the Dow Jones Industrial Average slid 17.16 points, or 0.1%, to 26,089.61. The S&P 500 declined by 0.2% to 2,886.98 as the tech sector dipped by 0.8%. The Nasdaq Composite fell 0.5% to 7,796.66.

The Federal Reserve is scheduled to hold a two-day meeting on monetary policy this week. While the central bank is not expected to make any policy changes, market participants will look for any clues about potential rate cuts later this year.


The dollar was mostly stronger during the week due to a combination of risk aversion and some positive economic updates that have partially eased fears of a rate cut by the Federal Reserve. The greenback first received a boost from US-Mexican agreement as traders viewed the deal as avoiding additional weakness in economy and thus saw a lower probability of a rate cut. Under the deal, in which Mexico agreed to take "unprecedented steps", the duties that were due to come into effect on Monday have been suspended.

On the data front, US small business optimism increased 1.5 points to 105.0 in May. The producer price index rose 0.1%, while core PPI moved up 0.4% last month. Meanwhile, the consumer price index edged up 0.1% in May as a rebound in the cost of food was offset by cheaper gasoline. The CPI gained 0.3% in April. In the 12 months through May, the CPI increased 1.8%, slowing from April’s 1.9% gain. Excluding the volatile food and energy components, the CPI rose 0.1% for the fourth straight month. In the 12 months through May, the core CPI rose 2.0% after advancing 2.1% in April. The weekly jobless claims unexpectedly rose, sparking fears about the state of the labor market.

But the negative figures were eclipsed by unexpectedly strong retail sales data that sent the greenback higher across the board at the end of the week. The US retail sales rose 0.5% last month as households bought more motor vehicles and a variety of other goods. Moreover, data for April was revised up to show retail sales gaining 0.3%, instead of dropping 0.2% as previously reported. Excluding automobiles, gasoline, building materials and food services, retail sales advanced 0.5% last month after an upwardly revised 0.4% rise in April.

Against this backdrop, EURUSD slipped to lows around the 1.12 handle after earlier attempts to settle above 1.13 failed. GBPUSD registered the third day of losses on Friday and finished below 1.26. Meanwhile, USDJPY was nearly flat on the week, closing in the 108.50 area as risk sentiment was unstable during the week.


Oil prices ended lower for the week, with Brent crude oil for August delivery down 2%, trimming losses on Thursday and Friday. However, in general, market dynamics showed that investors continue to express concerns about geopolitical tensions in the Middle East and trade war between the US and China, especially after Trump threated to impose new tariffs against Beijing. The second apparent attack on oil tankers in the Middle East in a month rekindled tensions in the region and fueled concerns over the potential supply disruptions which have supported the market somehow.

Meanwhile, the EIA reported another jump in crude oil inventories last week by 2.2 million barrels, which put Brent under the selling pressure, as well as the fact that the IEA revised down its 2019 demand growth estimate by 100,000 barrels to 1.2 million barrels per day. The agency also said that surging U.S. supply as well as gains from Brazil, Canada and Norway would contribute to an increase in non-OPEC supply of 1.9 million bpd this year and 2.3 million bpd in 2020. On Friday, Baker Hughes reported that the number of active U.S. rigs drilling for oil fell by 1 to 788 last week. That followed a decline of 11 rigs a week earlier.

Brent managed to attract demand on a break below the $60 handle and recovered to $62.50, finishing around the $62 level. Despite the recovery in the second half of the week, the sentiment in the market remains unstable as traders are cautious amid the ongoing trade tensions between the world’s two largest economies.