Traders await developments in US-China dispute, while Trump’s talk of no UK-US trade deal hits sterling
JP Morgan Chase has turned in better than expected results, as Wall Street’s earning season kicks off.
The bank reported second quarter income of $8.32bn, up from $7.03bn this time last year, helped by higher than forecast trading revenue and increased demand for loans.
We see good global economic growth, particularly in the US where consumer and business sentiment is high.
Wall Street is expected to open marginally lower after Thursday’s gains.
The Dow Jones Industrial Average, which closed up 224 points or 0.9%, is forecast to dip by around 10 points at the open, according to IG.
President Trump has said the relationship between the US and the UK is “very, very strong” – despite his earlier comments to the Sun.
Speaking to reporters at Chequers ahead of talks with Theresa May, he said they would be talking about trade among other things. But given he seemed to rule out a trade deal between the two countries because of May’s Brexit strategy, it remains to be seen how this turns out.
More on the record Chinese trade surplus with the US. David Cheetham, chief market analyst at XTB, said:
Trade remains one of the key topics for investors at present, with China announcing a record surplus with the US for the month of June. In Trump’s simplistic view of trade, the president views a deficit as a loss to the US, and therefore he will clearly be unhappy with the record high $29B shown against China for last month. The recently announced tariffs should see this fall in the present month, but it is unlikely to contribute to a major decline immediately with the tariffs themselves still only representing a fairly small portion of overall trade.
Another development that will likely attract the ire of Trump is the ongoing depreciation of the Chinese yuan, which is on course for its fifth consecutive week of losses against the US dollar – its longest weekly losing streak in two years.
Here’s more apparent fallout from the trade tensions between the US and China, courtesy of Reuters:
A hotel in the southern Chinese city of Shenzhen on Friday denied a report that it would charge U.S. guests an extra 25 percent amid an escalating trade war between Washington and Beijing.
However, three staff members who declined to be identified told Reuters that a discriminatory rate policy had indeed been posted at the hotel as of Thursday but had since been removed.
The pound continues to slip against the dollar as investors weigh up Donald Trump’s inflammatory comments about Theresa May’s Brexit proposals meaning no UK-US trade deal. It is currently down 0.64% at $1.3119, after hitting a low for the week of $1.3117.
Fiona Cincotta, senior market analyst at City Index, said:
US President Trump has put his counterpart Teresa May in a difficult position this morning saying that a soft Brexit would mean no trade deal between the UK and US. This comes a day after May released a white paper on the UK-Europe relationship after Brexit, offering a softer stance ahead of next week’s vote on a Brexit trade bill.
The UK can’t afford to alienate either the US or the EU, its two largest foreign trade partners, and will not be able to choose an “either-or” solution. Trump’s comments come at a particularly bad time for May who is facing bigger problems as her government is in a precarious balance after the resignations of David Davis and Boris Johnson earlier this week. The pound dropped 0.6% against the dollar following Trump’s remarks.
Connor Campbell, financial analyst at Spreadex, said:
For the second day in a row the markets ignored Donald Trump’s aggressive posturing to rebound, climbing back towards the levels abandoned at the start of the week. Not that there wasn’t at least one casualty of the President’s big mouth…
The FTSE led the way after the bell, the UK index adding another 60 points to re-cross 7700. That’s put the FTSE back in the ballpark of Monday and Tuesday’s 3 and a half week highs, showing the extent to which investors are trying to ignore the ongoing trade war between the US and China unless they specifically have a new threat to deal with.
Only three fallers in the FTSE 100: Randgold Resources as the gold price dips, credit specialist Experian following a trading update and Sky, as investors take some profits after Thursday’s rise on the back of the bid battle between Rupert Murdoch and Comcast for the satellite broadcaster.
As expected, investors continue to push the markets higher as European trading begins.
The FTSE 100 is up 0.68% at 7704, Germany’s Dax has risen 0.45% , France’s Cac has climbed 0.41% while Italy’s FTSE MIB is 0.43% better.
Michael van Dulken at Accendo Markets said the Chinese trade figures were a double edged sword:
[They are] supportive of global growth but backing up Trump’s trade grievances.
More on China’s trade figures, and more fuel for Donald Trump’s dispute with the country. The latest figures show a record trade surplus with the US as Chinese exporters rushed to sell goods to America ahead of the imposition of Trump’s tariffs. Reuters reports:
China’s trade surplus with the United States swelled to a record in June as its overall exports remained solid, a result that could further inflame a bitter trade dispute with Washington.
The data came after the administration of U.S. President Donald Trump raised the stakes in its trade row with China on Tuesday, saying it would slap 10 percent tariffs on an extra $200 billion worth of Chinese imports, including numerous consumer items.
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With Donald Trump focussed on the Nato budget, Brexit and bigging up Boris Johnson, investors have managed to put fears of an escalating trade war behind them for the moment.
The absence of harsh words from the US and China encouraged traders to step into the market and snap up stocks. Investors are getting used to the pattern, whereby equity markets can recover after a big sell-off that was triggered on account of trade tensions. In keeping with recent trends, the US indices held up better than their European counterparts. The S&P 500 hit its highest level since early March and the NASDAQ 100 hit an all-time high. Dealers believe the US is in a stronger position to weather the storm than the rest of the world, and that is why the US equity benchmarks are outperforming.
Steven Mnuchin, the US secretary of the Treasury, revealed that many of the trade talks with China have broken down, however, he confirmed that China is very important in cooperation with North Korea. These remarks suggest the US doesn’t want to be too aggressive with Beijing, which is also giving investors hope.
It is impressive that exports topped forecasts given that US tariffs on Chinese steel and aluminium kicked in last month. The massive trade surplus that China has with the US is one of the reasons that President Trump instigated the trade spat, and dealers will be keeping an eye on developments.
Trump’s declaration that this softer version of Brexit would mean that a trade deal with the US was “probably” off the table, was a blow to both host Theresa May and the pound, sending sterling tumbling overnight. Let’s not forget that the hope of a quick trade deal with the US was a significant factor in Theresa May’s decision to invite Trump in the first place. Another embarrassment that May could have done without.
Trump’s words of no deal have confirmed the fears of Brexiteers and will have stoked the fire in the hard Brexit camp, making Theresa May’s future in charge look doubtful once more. This fear was reflected in the pound as it dropped sharply in late night trading. With no high impact UK economic data due for release today, pound traders will continue to watch political developments. Trump and May are expected to hold a joint press conference after lunch where they will both be pressed for trade comments. In the absence of any encouraging trade comments, gains in the pound going forward could be limited, and a meaningful move over $1.32 could be doubtful.