US Markets

U.S.-China Trade Truce Brings Big Pre-Market Gains

Monday, July 1, 2019

Beginning the 2nd half of 2019 where the 1st half left off, pre-market futures are up big again this Monday morning. Reports of a trade-war truce between Presidents Trump and Xi came to fruition after their private meeting in Osaka, Japan this weekend during the G-20 summit. It was what market participants had been hoping for, save an actual new trade agreement signed.

The next meeting between the two leaders is being scheduled in Beijing, though Trump has said he’s “not rushed” in pushing a new trade agreement between the world's top two economies. He may be considering China’s economic numbers are taking a hit the longer this trade war continues — and we see evidence of this in China’s June manufacturing report last week, which swung to contraction levels: 49.4 versus 50.2 the previous month.

Yet the Peoples Bank of China has already announced it sees no need to bring a new stimulus program to the country unless the trade war heats back up. But we do see collateral damage on both sides since the trade war began in the fall of 2018: manufacturing in China and farming in America’s grain belt.

So why the persistent market positivity? Because currently the market prices in a winning scenario, whichever direction the trade war goes: either a new trade deal with China will open up the spigots in pent-up trade demand, or the trade war will continue and force the Fed to cut interest rates, bringing cheaper money to the domestic market.

After the bell today, we will see new June manufacturing numbers from PMI and ISM. Other domestic goods-producing data recently — regional numbers like Empire State and Philly Fed — have come in beneath expectations; investors (as well as voting Fed members) will be paying attention to which direction these bigger surveys will be pointing.

Speaking of big data surveys, ADP ADP private-sector employment rolls on Wednesday and non-farm payrolls along with a new Unemployment Rate from the Bureau of Labor Statistics (BLS) on Friday will define the direction of the U.S. workforce overall. Last month, Unemployment stayed near historic lows at 3.6%, though just 75K new jobs were reported for May. Was this a correction from the previous month’s very high numbers or the sign of cooling domestic labor?

Mark Vickery
Senior Editor

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