vrijdag 29 juni 2018

Global Stock Rally Halted By Report Trump May Withdraw From WTO

On the last day of a volatile, tumultuous quarter European stocks rebounded sharply following a broad-based rally in Asia on hopes for an upbeat end to the week and quarter, with risk on sentiment further unleashed by an early morning ("vaguely worded") European deal on migration which sent the Euro and 10Y Italian bonds surging. Indeed, it was nothing but green across global markets this morning...


However, the sense of precarious peace was shattered shortly after 6am ET when Axios reported that after several days of calm, President Trump has repeatedly told his advisers he seeks to withdraw the US from the WTO, a decision that would "throw global trade into wild disarray." Some excerpts from the report:
- Trump has frequently told advisers, "We always get fucked by the WTO. I don’t know why we’re in it. The WTO is designed by the rest of the world to screw the United States."
- Trump’s economic advisers do push back in the moment when he raises the idea of withdrawal.
- But they’ve never put in place a policy process to take the idea seriously, according to four sources with direct knowledge of his private comments.
- That dismissive attitude in the face of Trump’s insistence could ultimately prove to be a mistake, as history has shown with other policy ideas of which aides do not approve.
The news halted the morning's rally and pushed S&P futures lower in the pre-market, despite the fact that the story featured several caveats, which suggested that despite its bluster, the White House has no plans to follow through with these threats...


The reason for the market's jumpiness is understandable: not only has Trump flip-flopped on trade virtually every single day in the past month, with his opinions determined by the size of the market decline, but Trump also famously labeled the WTO a "disaster" and threatened to pull out during a heated interview he gave shortly after locking up the Republican nomination. Trump has also in the past proven that he's willing to move ahead with policies that his aides have advised against. Before the Trump news, the biggest overnight event was the news that European Union leaders had agreed to a deal to stem the flow of migrants, easing concern over a standoff between Italy and the rest of the the trading block, while the recently battered Euro jumped the most in a month, and Italian 10-year government bonds rose...


For those who missed it, late on Thursday EU leaders reached an agreement on migration at the EU summit which include Mediterranean centres for migrants to be kept in on a voluntary basis and in which refugees will be shared among EU members on a voluntary basis. The leaders agreed they must ensure effective control of external borders and prevent uncontrolled migration that was seen in 2015, while EU leaders also agreed to extend economic sanctions against Russia for another 6 months. Additionally, EU leaders also signaled intentions to respond to potential tariffs on cars, should trade tensions escalate. EU leaders had initially failed to formally approve a final EU summit joint conclusions statement after Italy blocked all agreements until demands regarding migration were included in the final conclusions which had prompted the EU to cancel the press conference.
Following the news, Europe's Stoxx 600 Index rose along with US index futures after a rally in Hong Kong and Shanghai led an advance in Asia, following a recent battering on escalating trade war fears. China stocks arrested their decline Friday, trimming losses at the end of a bruising month as central bank comments fueled speculation that liquidity conditions might be loosened. As Bloomberg reports, the Central bank report sends a signal that monetary policy will be a bit looser than previously expected, said Shen Zhengyang, Shanghai-based strategist with Northeast Securities, and shows official support for market and helps sentiment. The Shanghai Composite Index, which entered a bear market this week, rose 2.2% on the news, trimming the monthly loss to 8%, its worst since January 2016. Meanwhile, developers soar, with Country Gardens leading gains on the Hang Seng Index climbing 11% following a buyback; it still remains the worst performing stock on the HSI this week, falling 12%. News of potential further easing also boosted the offshore yuan rising and halting a record 11-day decline that was triggered by concern about Chinese policy makers’ intentions... 


Buoyed by the Chinese rebound, the MSCI emerging-market index tocks climbed the most in more than a year, rebounding from the lowest level in 10 months...


Meanwhile, in the bond sector, European Govt Bond curves flatten aggressively on reports that ECB may favor long-end when executing QE reinvestments...


While the bund/BTP spread tightened on migrant deal. Curiously, US Treasury remain stubbornly unchanged even after the return of some market optimism... In FX, the euro held most of its Asia-session gains after the early morning EU migrant deal was announced. The Bloomberg Dollar Spot Index was lower a second day yet stood stronger on a weekly basis before the release of the Fed’s preferred gauge of inflation. The pound rallied after GDP data for the first quarter was surprisingly revised higher from earlier estimates boosted by the construction sector. The yen, dollar and Treasuries all declined as demand for safer assets waned; Japan’s bond market showed muted reaction after the central bank reduced outright bond purchases for the third time this month. In the latest Brexit news, EU's Barnier says that progress has been made on Brexit but divergences remain with official European Council statement stating that no substantial progress has been made on Ireland, adding further progress is welcome on the withdrawal pact.
# In commodities, diverging performance in energy markets, with WTI -0.3% and Brent +0.25%, after WTI hit its highest level in 4 years during Thursdays trade and set for its longest quarterly rise in 8 years, as supply disruptions continue to squeeze the US oil market alongside overarching trade tariff concerns. In the metals scope, gold is up slightly around USD 1,250/Oz level, as the dollar falls off. This comes after gold hit a 6-month low in the previous session, and was set for its worst monthly performance in over 1 year. Shanghai steel is set for its best quarter in 5 as Chinese demand continues to grow, with the construction material up 2% on the day, and +15% in April-June. Zinc has parred the losses seen in early trade following planned output cuts of 10% by smelters, but is still set for its worst quarter since 2015....