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 them [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. Furthermore, 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.  

Friday's expected data include personal income and spending, and University of Michigan Consumer Sentiment Index.  Constellation Brands and Greenbrier are among companies reporting earnings

Market Snapshot

  • S&P 500 futures up 0.5% to 2,733.75
  • STOXX Europe 600 up 1.2% to 381.29
  • MXAP up 0.9% to 166.11
  • MXAPJ up 1.5% to 539.19
  • Nikkei up 0.2% to 22,304.51
  • Topix up 0.2% to 1,730.89
  • Hang Seng Index up 1.6% to 28,955.11
  • Shanghai Composite up 2.2% to 2,847.42
  • Sensex up 1% to 35,375.50
  • Australia S&P/ASX 200 down 0.3% to 6,194.63
  • Kospi up 0.5% to 2,326.13
  • German 10Y yield rose 2.0 bps to 0.339%
  • Euro up 0.6% to $1.1635
  • Italian 10Y yield fell 3.0 bps to 2.511%
  • Spanish 10Y yield fell 1.8 bps to 1.347%
  • Brent futures up 0.8% to $78.43/bbl
  • Gold spot up 0.3% to $1,251.50
  • U.S. Dollar Index down 0.6% to 94.75

Top Overnight News

  • ECB is considering buying more long-dated bonds as it reinvests maturing QE bonds, Reuters reports citing five central-bank sources
  • Euro-area inflation hit the symbolic 2 percent level in June for the first time in more than a year, supported by higher oil prices
  • Chinese policy makers will act to slow the yuan’s slide once it gets close to 6.7 per dollar in China’s onshore market, according to most of the 18 traders and analysts surveyed by Bloomberg
  • Mitsubishi UFJ Financial Group Inc.’s joint venture with Morgan Stanley faces a 218 million yen ($2 million) fine for allegedly manipulating prices in the Japanese government bond futures market
  • Ilmars Rimsevics, a member of the European Central Bank’s Governing Council, will face prosecution for bribery in Latvia, further tainting the nation’s reputation in a year that’s already brought U.S. money-laundering allegations and the closure of its No. 3 bank
  • Indonesia’s central bank stepped up its policy action with a bigger-than-forecast interest-rate hike -- the third increase in six weeks -- to halt a deepening slide in the currency
  • Turkey’s monetary blitzkrieg seems to have worked, with the lira showing signs of a much- needed turnaround

Asian stocks initially struggled for direction and traded mixed for most the session with the ASX 200 (-0.3%) and Nikkei 225 (+0.1%) contained on month-, quarter- and half-year end rebalancing, while better than expected Industrial Production and a 25year low Unemployment Rate in Japan failed to underpin the local benchmark. However, it was not all doom and gloom for stocks as a late breakthrough at the EU summit later provided the region with a mild uplift. Elsewhere, Hang Seng (+1.6%) and Shanghai Comp. (+2.1%) rallied amid outperformance in tech and plans to ease foreign investment restrictions which overshadowed the switch to a weekly net liquidity drain by the PBoC, although the 3 big telecom names were mixed after their spin-off JV China Tower received approval for a Hong Kong IPO which is set to be the largest globally since Alibaba. Finally, 10yr JGBs were slightly softer amid modest gains in Japanese stocks and after the BoJ cut its purchase amounts in the 5yr-10yr maturities, although the reaction to the Rinban was muted in comparison to previous similar reductions.   US Ambassador to China Branstad said the Trump administration is unconvinced China is willing to make enough progress on trade issues soon enough while he added there is scepticism regarding promises China has made and the US wants to see openings carried out.

Top Asian News

  • Indonesia Surprises With Half-Point Rate Hike to Bolster Rupiah
  • China’s Zinc Production Cut ‘Only a Proposal’ as Prices Drop
  • China Is Expected to Defend Yuan If It Weakens About 1% Further
  • Malaysia’s $69 Billion State Fund Chairman Is Said to Be Leaving
  • MUFG-Morgan Stanley Venture Accused of Futures Manipulation

European equity bourses are higher (Stoxx 600 +1.19%) after the EU struck a deal for immigrants in the most recent EU summit, settling tensions within the region. Italian and German bourses are benefitting the most from reduced tensions, with the two respective indexes up 1.7% and 1.5% on the day after hitting multi-month lows earlier in the week. FTSE 100 is being weighed on by a stronger GBP as the UK posted positive GDP figures. US equity futures hampered in recent trade by reports via Axios that US President Trump is said to have told advisors he wants the US to withdraw from the WTO. IT names are benefitting from the improved risk tone as investors return to higher Beta assets, with the sector the current outperformer (+1.9%).  Bank stock are in focus, with the US Fed approving 34 of 35 capital plans in the second part of the bank stress tests. CaixaBank (+4.8%) also reached an agreement to sell 80% of its real estate business to private equity fund Lone Star. Gross book value of real estate assets as of end-October 2017 was around EUR 12.8bln Hapag Lloyd revised their guidance downwards on the back of fuel related costs, with this hitting the entire shipping industry; Maersk lower by around 4%.

Top European News

  • Euro-Area Inflation Hits 2% Level Amid Boost From Oil Prices
  • German Unemployment Slides Again in Sign Companies Stay Upbeat
  • U.K. Economy Grows Faster Than Estimated on Construction
  • UniCredit Said to Be Selling $3.5 Billion of Loans in Cleanup
  • Novartis to Spin Off Alcon as CEO Focuses on Prescription Drugs

In FX, early European trade has been dictated by the firmer EUR seen in the wake of EU leaders reaching an agreement on migration at the EU summit. Optimism surrounding the deal has largely been spurred by relief regarding recent tensions within the CDU/CSU alliance in Germany. CSU’s Michelbach has viewed the deal as a ‘positive signal’ and thus markets are optimistic that this could pave the way for a mending of relations. Furthermore, the fact that Italy were able commit to the deal and avoid walking away has been met with positivity in the market; albeit Salvini has stressed the need for ‘concrete commitments. In terms of price action, EUR/USD soared through the 1.1600 level during thin Asia-Pac trading hours to make a high print of 1.1666 but still some distance of the 1.1720 high seen earlier in the week. EUR unfazed by in-line EZ CPI (Y/Y 2.0%). The sharp rise in the EUR has naturally pressured the DXY which has given up its 95.00 handle to trade lower by around 0.5%. Subsequently, the USD is softer against a bulk of its major counterparts with JPY the exception to the rule amid the broader risk environment spurred by events in Brussels. USD/JPY sits marginally higher for the session with the move to the upside running out of steam ahead of 110.80 with exporter offers from 110.80-90 capping gains. GBP is also firmer vs. the USD (but softer vs. EUR) and has subsequently reclaimed a 1.3100 handle. Brexit-related rhetoric from overnight was unsurprisingly inconclusive and generic with PM May stating that she wants a deal on Brexit that will work for both UK and EU. Perhaps more interestingly, Business Insider sources suggest the EU will reject any Brexit deal that stipulates the UK remains with the goods single market. GBP boosted above 1.3150 to a high of 1.3183 after Q1 GDP Q/Q was revised higher to 0.2% from 0.1% and thus provided some food for thought at the BoE ahead of their August meeting (albeit the MPC had been looking for a firmer upward revision to 0.3%). Elsewhere, broad USD softness has lent a helping hand to AUD with AUD/USD paring the softness seen in the wake of another

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.   

Looking at the day ahead, we get inflation releases with preliminary June CPI reports due in France and the Euro area (core CPI of 1.0% yoy expected), followed by the May PCE report for the US.  Other data worth watching include June unemployment data in Germany, May money and credit aggregates data and the final Q1 GDP print in the UK, and May personal income and spending, June Chicago Fed PMI and final June University of Michigan consumer sentiment revisions in the US.

US Event Calendar

  • 8:30am: Personal Income, est. 0.4%, prior 0.3%; Personal Spending, est. 0.4%, prior 0.6%
  • 8:30am: PCE Deflator MoM, est. 0.2%, prior 0.2%; PCE Core MoM, est. 0.2%, prior 0.2%
  • 9:45am: Chicago Purchasing Manager, est. 60, prior 62.7
  • 10am: U. of Mich. Sentiment, est. 99, prior 99.3

DB's Jim Reid concludes the overnight wrap

It’s amazing to think that by the close of business tonight the first half of the year will be wrapped up. Needless to say that it’s been a bit more of a challenge in 2018 compared to last year with 1379 (and counting) separate President Trump Tweets needing dissecting. In fairness Trump’s Twitter following is now up to 53 million and he’s just overtaken Colombian singer Shakira for 18th position on the most followed accounts globally. Ironically CNN is in 17th position, the news agency Trump has famously branded as being ‘fake news’.

While Trump might be working his way up the Twitter leaderboard, markets aren’t too sure if they’re coming or going at the moment with an initially weak European session yesterday giving way to a fairly decent late afternoon rally for risk in the US. By the end of play the S&P 500 closed +0.62% which means it has spent the past 8 sessions now passing from a loss one day to a gain the next. The magnitude of the losses outweigh the gains however with the index down a little over 2% in this spell. That looks fairly respectable in the context of EM equities however which are down over 5% in the same period. Elsewhere, the Nasdaq (+0.79%) was the relative outperformer yesterday on the back of a decent session for tech while in Europe the Stoxx 600 finished -0.82%, albeit playing a bit of catch up to the late losses on Wednesday. As has been the trend of late, bonds were fairly sanguine (10y Treasuries +1.1bps and Bunds -0.2bps) while Oil (WTI +0.95%) extended its move further into the $70s.

Yesterday was however a breakthrough day for US financials of sort with the S&P 500 financials index (+0.86%) finally snapping a record run of 13 consecutive daily losses. It’s worth noting that this came prior to the release of the second part of the Fed’s stress tests for Banks with the results out last night. Shortly following the announcement the 4 largest US lenders announced a cumulative distribution of more than $110bn through dividend and stock buybacks. Wells Fargo (+3.4%), JP Morgan (+2.0%) and Citigroup (+2.1%) all advanced in afterhours trading while a US financials ETF was up just under +1.0%.

Overnight, S&P 500 futures more broadly are up +0.34% while markets in Asia are closing out the week a bit better with the Hang Seng (+1.14%) and Shanghai Comp (+1.20%) rebounding strongly while the Kospi (+0.24%) and Nikkei (+0.19%) are posting smaller gains. The bigger news this morning however is the Euro which is up +0.76% after EU leaders negotiated a package of measures on migration at the EU summit where member states agreed to increase border security and pledged to overhaul rules for distributing migrants when a host country is overwhelmed. This came despite expectations being low for some form of multilateral agreement so its come as a fairly positive surprise. Importantly for Chancellor Merkel, the joint statement indicated a commitment  to “all necessary measures” to curb the movement of migrants northward.

That said it still remains unclear whether the package will be enough for Merkel to go back successfully to Seehofer’s CSU with however we will get a better idea of that over the weekend. In a report our German economists published yesterday prior to the overnight developments, the team highlighted that the CDU and CSU grandees will – in separate meetings – assess the outcome, in light of their positioning. Our colleagues expect both parties to come to a tentative and preliminary conclusion that things are moving in the right direction, but that major steps need to be taken. This would be face-saving for both sides and would allow Merkel (and Seehofer) to stay in office. On the other hand an alternative scenario, of fundamental discord between the CDU and CSU over the summit’s outcome, could trigger a government crisis in their view, which would likely lead to the CSU walking out of the federal government. So it’ll be well worth seeing how things develop over the weekend. You can find more details in our colleagues’ report here.

As well as that to look forward to, the other good news is that we have something non-trade related to distract us today with the May PCE report due out in the US this afternoon. Our US economists expect a +0.14% mom reading which should be enough to push up the annual rate to +1.9% yoy just about. If that is correct then this would be the highest core PCE inflation level since January 2017, so unless we see a big downside surprise, it’s hard to see today’s data as going against the Fed’s view of two more rate hikes this year. It’s worth also keeping an eye on this afternoon’s personal income and consumption reports for May for evidence that consumer activity remains on track to rebound strongly in the current quarter.

We’ll also get the broader Eurozone CPI report for June today although yesterday’s country level data didn’t throw up any surprises. To be fair with the ECB now pre-committed, you could probably argue that these have become less market sensitive releases compared to the past. Germany’s flash June reading came in at a slightly softer than expected +0.1% mom although base effects did leave the annual rate at +2.1% yoy as expected. Italy was a bit above market at +0.3% mom, while Spain was in line at +0.2% mom.

In the US the most significant data release yesterday was the downward revision to Q1 GDP (to +2.0% qoq annualized from +2.2%), mainly due to a downward revision to the contribution from inventories, although to be fair it didn’t particularly move the dial in markets. Just quickly on the GDP report it’s worth noting that corporate profits were confirmed as growing +6.8% yoy in Q1, the fastest rate since Q4 2016 and the sixth consecutive positive reading, following a run of 5 negative readings though 2015 and into 2016. In terms of the remaining data, the June Kansas Fed manufacturing index edged down 1pt mom to an above market print of 28 (vs. 26 expected) with the prices paid and prices received indices remaining elevated compared to historical norms. Meanwhile the weekly initial jobless claims ticked up to 227k (vs. 220k expected) while continuing claims fell slightly (1,705k vs. 1,717k expected).

Closer to home a busy week for the BoE, saw Chief Economist Andy Haldane become the latest MPC member to make public comments when he spoke in the afternoon. Haldane reiterated his hawkish stance (as a reminder he dissented in favour of a hike at the last meeting) by saying that a steady pick up in wage growth and a tighter labour market will “add impetus to cost and inflationary pressures”.

He went on to say that a hike now would “lower the risk of needing to tighten policy less gradually in future and cause a sharper adjustment in the economy”. Sterling closed -0.27% yesterday and 2y and 10y Gilts were +0.4bp and +1.7bp higher respectively.

Over in the US, more Fed speakers are now cautioning on the fallout from trade tensions. The Fed’s Bullard noted “I’m hearing full-throated angst” from his contacts, with “all aspects of the economy… affected” and that “shows you how uncertainty over trade policy can feed back” into business decision making. Elsewhere, the Fed’s Bostic said “there is so much concern in the business community…I’m hearing some very deep concerns”. Meanwhile on the topic of more  rate hikes, Mr Bostic said “I want to make sure as we move we are truly at a neutral space and not going too far” while Mr Kashkari is “comfortable with us moving to a neutral rate” although he believes we are “one or two hikes away from neutral”.

Before we wrap up a potentially important date for your diaries can now be confirmed for July 16th when President Trump will meet with Russian President Putin in Helsinki. That is one day after the World Cup Final so maybe Trump will be keeping a closer eye on Russia’s impending playoff run if he wasn’t already.

Looking at the day ahead, as mentioned earlier it’s another busy day for inflation releases with preliminary June CPI reports due in France and the Euro area (core CPI of 1.0% yoy expected), followed by the May PCE report for the US.  Other data worth watching include June unemployment data in Germany, May money and credit aggregates data and the final Q1 GDP print in the UK, and May personal income and spending, June Chicago Fed PMI and final June University of Michigan consumer sentiment revisions in the US.

Comments

William Dorritt 1982xls Fri, 06/29/2018 - 12:23 Permalink

You neglected to mention "Fuck the CFR" and all of the other globalist aka foreign govt shill organizations and lobbyist who should only be talking to the State Dept if at all.

Trump must revoke the security clearances for the members of every Globalist Organization, and all of their members must be registered as Foreign Agents and sent to prison if they don't register. 

In reply to by 1982xls

Arnold Fri, 06/29/2018 - 07:23 Permalink

Can we elect him Philippine president too?

Say, what is Durerte's legal background?
Do they make SCOTUS robes that short?

The nomination would cement relations and there are no
citizenship or background requirements to speak of.

Clearly, Ginsberg and Sotomayor are example enough of this.

"While the Constitution stipulates qualifications for being President of the United States, it is silent as to qualifications for Supreme Court justices."

https://thelawdictionary.org/article/qualifications-to-become-a-supreme…

scrone Fri, 06/29/2018 - 07:34 Permalink

Great 80 years of peace and prosperity thrown out the window because an ignorant clown managed to lie himself into the whitehouse. No doubt the MAGA brigade will somehow think dumping all the post WW2 international institutions is an act of brilliance.

Offthebeach scrone Fri, 06/29/2018 - 07:52 Permalink

You are free to go overseas and spend your life and treasure in peace and prosperity.  

Instead the elites gave us a Cold War bonus of Afghanistan, Iraq and 20 times Reagan's one trillion dollar debt. 

Us knuckle dragging, mouth breathing deplorable can manage fine without  rent seeking, parasitic "elites".

In reply to by scrone

ToSoft4Truth Fri, 06/29/2018 - 07:43 Permalink

Trump just says things....  "Symbolism over..."

 

Hillary?

 

The Wall?

 

What's tday's status of those invaders - do they stay or are they being catapulted back? 

Bobbyrib Fri, 06/29/2018 - 07:49 Permalink

If I were Europe, I would sell my Treasury holdings, settle my trades in Euro, and increase tariffs on US goods based upon the devaluation of the dollar.

Edit: Also each European state needs the ability to defend itself.

Bobbyrib Offthebeach Fri, 06/29/2018 - 08:04 Permalink

People act like we don't benefit from the current system at all. We've been running annual budget and trade deficits for decades. Our manufacturing sector is a shell of its former self (thanks to corporate greed). The rest of the world is holding up the value of the dollar by participating in the fraudulent system that we also take advantage of. Why would world leaders allow Trump to pick and choose what he wants the US to participate in without any repercussions?

Trump fucked up the negotiations for better trade deals by taking on the whole world at once. He should have started with China. They would be less likely to form a front against him. The Art of the Deal is so fucking brilliant!

In reply to by Offthebeach

Mittens is a god Fri, 06/29/2018 - 07:54 Permalink

Paging Bill of Righteous Assholes, Paging Bill of Self Righteous Assholes. Your Mom called again.  She is fairly upset about some pictures of you having sex with local farm animals she found on the internet. Uncle Billy’s milk production is down 30% because of your barnyard buggery. You need to shower off and report to the mental hospital for a full evaluation that is some sick fucking shit Billy boy. Also McDonald's Called you have been let go for being a racist asshole. Now your only option is working for uncle Billy but you’re not allowed to be around farm animals unsupervised.  You  are going down for this one, but not on the neighbors Brahma Bull.

Catullus Fri, 06/29/2018 - 07:59 Permalink

Please God do it.

The thing never had any teeth. Countries ignore rulings. There were "fines" that no one ever paid. It was always trying to create a massive bureaucracy of shakedown artists standing at ports of entry.

You don't need an agreement to trade. You just trade.