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Stocks Fall on Trade War Fears, Dollar Recovers

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Equities

Major US indices kicked-off the third quarter on the back foot. The Dow Jones dropped more than 200 points during the Asian session to reach a low of 24070. SPX500 fell more than 17points to find support near the 2700 level. Moreover, Nasdaq is down 0.8% and is trading near the 7000 psychological level. On the other hand, European indices opened on a gap lower where the DAX was the biggest loser. President Donald Trump said yesterday in an interview that the European Union is "possibly as bad as China" but only smaller. The trade tension between the United States and the European Union will weigh on European car manufacturers. European stocks might suffer more than the US stocks on the long run, as the US economic outlook is stronger than the European economic outlook, and the trade uncertainty is more negative for the Eurozone economy.

USD

The dollar index which measures the greenback against a basket of six major currencies gained five percent in the second quarter and managed to appreciate for three consecutive months. Major currency pairs started the third quarter on a gap lower, as the greenback recovered from Friday's losses. USD/JPY traded above 111 during the Asian session, for the first time since May 22nd despite the sell-off in the global stocks. The Japanese Yen usually performs well in cases of financial uncertainty. However, the drop in US Treasury yields signals that investors preferred the risk-off US bonds to the safe haven currency.

Metals

Gold fell for the third consecutive month where June was the worst month for the precious metal since November 2016. The gold ounce dropped during the Asian session to erase Friday's gains. Gold fell from a high of $1254 to threaten 2018 lows. On the other hand, the silver ounce retreated from a high of $16.10 and is trading near a six-and-a-half month low.

Oil

Oil prices opened on a gap lower as President Trump tweeted on the weekend that he spoke to King Salman and asked him to increase the Kingdom's oil production by two million barrels per day to offset the supply disruption from Iran and Venezuela, and the latter agreed. The West Texas Intermediate opened lower at $73.56, after closing at $74.25 on Friday, the highest close since late 2014. Moreover, the Brent oil opened at $78.30 after closing at $79.20 last week. Oil prices will remain vulnerable to any talks of output increase by Saudi Arabia which will violate the OPEC meeting output plan.

Major Economic Events

GMT Country Event Expectation Previous
8:30 UK Manufacturing PMI (Jun) 54.1 54.4
14:00 US ISM Manufacturing PMI (Jun) 58.2 58.7


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