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Global Stocks Fall on Trade Spat, Dollar Down

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Equities

Global stocks were under pressure yesterday as the escalation in the trade tensions continues to weigh on investors sentiment. US indices suffered their biggest one day drop in weeks as president Trump threatened US trading partners. The Dow Jones Industrial Average lost 1.3% to 24252, the lowest close since early May. The Dow Jones reached a low of 24077 and was able to breach the 200-day simple moving average for the first time since May 3rd. The SPX500 was around 2% down, but the support zone near 2700 boosted the index to cover some of its losses and finish the day down almost 1.4%. The Nasdaq Composite was the biggest loser where the benchmark fell more than 2%, the biggest one-day loss since April 6. Tech stocks struggled the most due to reports that the White House is considering to block Chinese investments in US tech firms. The Chicago Board of Exchange Volatility Index, VIX, which is used to measure the stock market’s expected volatility ended the day up 25%. During the session, the index traded at 19.6, the highest level since April 25th. Trump retweeted a tweet yesterday showing that the economic optimism is at its record level. People could be optimistic about the economy. However, the actions of President Donald Trump will weigh on the performance of the US firms and might lead to a slowdown in the US economy in the future. Harley Davidson is an example of the effect of Trump's actions on the US firms. The company's profits will shrink by 5 to 8 percent due to the EU tariffs.

USD

The US dollar fell for the third consecutive day as investors weigh the effect of the trade war on the greenback. The dollar index, DXY, which measures the dollar strength against a basket of six major currencies tumbled to a low of 94.17. The US 10-year treasury yields found support near this month’s low at 2.86%. USD/JPY traded at a low of 109.38 as the demand for the safe haven currency increased. Despite recent declines, the strong economic outlook is supporting the US dollar. However, if the trade conflicts persist, the US economy will lose momentum.

Metals

Gold prices fell yesterday to erase all the gains earned on Friday. The gold ounce traded at a low of $1,262 during the Asian session, falling from a high of $1272. “Death Cross” was formed on the gold chart for the first time since November 2016.  A death cross occurs when the 50-day simple moving average crosses below the 200-day simple moving average. Investor’s appetite towards the precious metal shrunk in the past months due to the rising US treasury yields. Despite the slump in the stock market, investors favor the risk-off yielding bonds to the non-yielding bullion. The silver ounce also slumped yesterday to settle at $16.30.

Oil

Oil prices drifted lower yesterday as investors were seen taking profits after the appreciation in price post the OPEC meeting. West Texas Intermediate retreated from a one-month high of $69.41 per barrel to close at $68.12 whereas Brent oil dropped from a high of $75.78 per barrel to settle at $74.77. Oil prices remain vulnerable to the implementation of the OPEC output plan starting on July 1st. In terms of data, the American Petroleum Institute (API) will report the weekly US crude oil stock today.

Major Economic Events

GMT Country Event Expectation Previous
14:00 US CB Consumer Confidence (Jun) 127.6 128.0
20:30 US API Weekly Crude Oil Stock   -3.016


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