- US indices ended Monday’s session with moderate declines, poor sentiment has also been seen in China
- US may decide to introduce duties on imports of fabricated structural steel from China and Mexico
- Lacklustre labour market data from Japan and another assurance of a sales tax hike in October from Abe
Some falls on Monday
The first day across equity markets was not the best one as major indices took a step back. Widespread but limited declines were seen on Wall Street as investors may have booked some of their gains made in previous days. The NASDAQ lost 0.8%, the SP500 fell 0,5% and the Dow Jones slid 0.4%. What could be interesting, along with weaker sentiment in equities one may notice improved sentiment in bonds with the US 10Y bond yield climbing slightly on Monday (it is trading at 2.034% this morning). It is a clear signal that market participants have become less confident of aggressive monetary easing from the Federal Reserve in the foreseeable future after the robust employment report we got at the end of the past week. However, it also shows that good news is bad news for equity investors suggesting that they have become a hostage of central banks - they seem to think that rate cuts are positive for stocks because of rate cuts but play down the fact that less rate cuts may be a sign of the better economic outlook and thereby a higher demand and possibly higher earnings of companies they hold in their portfolios.
2950 points could be seen as a major support for bulls in the US500. Keep in mind that a lot will depend on what the Fed will say later this month. Source: xStation5
More US tariffs in the pipeline?
Soft sentiment has also been seen in Chinese markets with the Hang Seng falling 0.7% at the time of writing. One possible reason could be some information we were offered on Monday from the US Commerce Department. Namely, it said that domestic producers were being harmed by imports of fabricated structural steel from China and Mexico as the two countries were reportedly subsidizing their exports of these products. In its preliminary statement, the department suggested it would apply levies between 30.3% and 177.43% on Chinese imports of structural steel and up to 74.01% on Mexico’s imports of the product. Nevertheless, this ruling is not binding yet, and a final decision on the findings will be announced around November 19. Let us notice that fabricated structural steel is used in building projects, hence it would have a significant effect on gross fixed capital formation. The Mexican peso is falling almost 0.2% against the greenback at the time of preparing this commentary. To sum up, comments like these do not bode well ahead of another round of trade negotiations between the US and China set to kick off this week.
In the other news:
Japanese nominal wage growth fell 0.2% YoY in May, beating the consensus of a 0.6% YoY decline, the reading for April was revised down to -0.3% from -0.2%; money stock M2 for June rose 2.3% YoY (cons. 2.6%), and M3 rose 2% (cons. 2.3%); in addition to these readings PM Shinzo Abe reiterated that a sales ext increase would take place in October barring a Lehman-level shock
Australian NAB business conditions index rose to 3 from 1 in June, while business confidence declined to 2 from 7 - the Aussie is falling 0.2% against the US dollar and is the weakest major currency