Who Says You Can’t Have a Trade War Without Volatility?

Stocks rebounded nicely on Monday, despite the burgeoning trade war between the US and China.

Nothing’s changed on that front. But no news was apparently good enough for a market bounce.

Of course, this battle is still in the early innings. Just last Friday, the US imposed tariffs on $34 billion worth of Chinese imports, turning rhetoric into reality.

China retaliated with its own duties on US goods.

We’ll see which country blinks first in the standoff.

I’m not sure President Trump has the right approach…but I agree with his goal of levelling the playing field.

You often hear trade deficits mentioned as the reason for the tariffs.

However, China’s intellectual property theft from US companies poses a bigger threat than any imbalance.

Show of strength

The Institute for Supply Management’s manufacturing index is still on fire. The forward-looking indicator surprised to the upside in June, coming in at a strong 60.2.

Readings above 50 imply an increase in activity levels, while a move over 58 implies manufacturing growth of about 4%.

The ISM manufacturing index is a proven market mover, but this upside surprise didn’t move the market whatsoever.

A minute of our time

Minutes from the Federal Open Market Committee’s June meeting didn’t move the markets.

The market already registered its disapproval of the Federal Reserve’s plan to hike rates twice more, despite a flattening  curve and an intensifying trade war.

Traders bought the long end of the curve, reducing its slope even more.

If the Fed delivers on its targeted rate hikes, the curve could invert. We don’t want that to happen. An inverted curve could mean a potential US recession.

The minutes showed that at least some Fed officials appear concerned about the yield curve and feel it’s important to monitor. So, that’s a relief! 

On the payroll

Friday’s payroll report was a mixed bag.

Here’s the good news: the US economy created 213,000 non-farm jobs in June, topping the consensus estimate of 190,000 new positions. The labor participation rate also climbed to 62.9% from 62.7%.

Don’t get too excited.

Here’s the bad news: the unemployment rate increased to 4% from 3.8%.

What happened? More people entered the workforce than were hired.

Wages increased 0.2% on the month, falling shy of the expected 0.3% uptick. On a year-over-year-basis, wages grew 2.7%; the consensus had called for wage inflation of 2.8%.

That wasn’t enough to get a tradeable rise (or fall) out of the market.

On the horizon

Later this week, we’ll get a couple important inflation gauges.

Most important, the June consumer price index (CPI) will be out Thursday morning.

CPI is tracking above the Fed’s 2% target. So, stay alert!

Regards,

Lance Gaitan,
Editor , Harry Dent Daily

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