Monday, 04 June 2018 11:20

"Glass Half Full" Markets Jump, Ignoring Renewed Global Trade War

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Where previously the threat of renewed trade war between the US, also known as the "+1" in this weekend's meeting of G6+1 nations, and EU, Canada, Mexico, and of course, China, would have been sufficient to pummel futures and stocks, today stocks are approaching life with a "glass half full" approach, and global markets and US equity futures are green across the board.

There were two key factors for today's bout of optimism: i) the return of the US-North Korea summit on June 12 and ii) Friday's strong (pre-tweeted) US payrolls report, which surprised to the upside and has put protectionist fears to the side, spurring Euro stocks and S&P futures to a gain after peers in Asia jumped. Treasuries slipped alongside the dollar, while the pound and euro rose.

Helping sentiment was the continued sharp drop in Italian yields, with both the Italian 2Y spread to German bunds..

... as well as the 10Y sliding to levels far below last week's crisis highs.

“NFP was good” and it helped boost investors’ risk appetite in Asian trading, said Kapstream Capital money manager Raymond Lee in Sydney. “After markets and risk assets got constructive again, the yen sold off”

Europe's Stoxx 600 Index jumped (0.5%) as every industry group traded in the green, with utility companies leading the way as markets continue to digest Friday's NFP report and the rescheduling of the NK-US summit on June 12th, thus outweighing the lingering trade concerns which saw the US and China fail to reach an agreement over the weekend, albeit both parties stated that progress had been made. The IBEX (+1.2%) is the outperformer amid positivity on the domestic political front. The FTSE MIB is fluctuating between positive and negative as political uncertainty in the region is leading to volatile trade. Utilities are currently outperforming with Iberdrola leading the sector (+3.0%) after an upgrade at Goldman Sachs.

Earlier in the session, Asia equity markets started the week higher across the board with the MSCI Asia Pacific Index surging 1.3% even as China warned it will withdraw from commitments it made on trade if President Donald Trump carries out a separate threat to impose tariffs on the Asian country; instead traders found support in the abovementioned double-dose of optimism from strong jobs data and after US President Trump confirmed the summit with North Korea will go ahead as initially planned in Singapore on June 12th. ASX 200 (+0.5%) and Nikkei 225 (+1.4%) were both positive from the get-go with CYBG shares leading the advances in Australia after the Co. sweetened its merger bid for Virgin Money, while the Japanese benchmark was among the outperformers as it coat-tails on a weaker currency. Hang Seng (+1.3%) and Shanghai Comp. (+0.2%) also conformed to the broad upbeat sentiment following a net liquidity injection by the PBoC and amid reports that China widened the collateral for its Medium-term Lending Facility which will include qualified credit bonds.


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