Monday July 1st

1-07-2019

Dow futures surge more than 260 points after Trump and Xi agree not to impose more tariffs

U.S. stock index futures surged on Monday morning after the U.S. and China agreed to hold off on slapping additional tariffs on their products in an effort to resume trade talks. As of 8:07 a.m. ET Monday, Dow Jones Industrial Average futures were up 265 points, indicating a gain of 260 points at Monday’s open. S&P 500 and Nasdaq 100 futures also pointed to gains. Chipmaker shares rose broadly. Skyworks Solutions surged 7.2% in the premarket while Micron Technology advanced 6.4%. Shares of Qualcomm and Broadcom climbed 5.7% and 4.7%, respectively. Apple and FedEx also rose more than 2% each. “The markets appear to be content with the cooperative tone coming out of the meetings. To me, it felt like the contrarian play was to the upside post meetings,” said Dan Deming, managing director at KKM Financial. “There was a great deal of bearishness in sentiment headed into the meeting. Many market observers were discounting any change in the narrative, which made many believe the risk was to the downside.” Those gains prime Wall Street to start the second half of the year with a bang following a big first half. The S&P 500 rallied more than 17% to start off 2019, notching its best first half in more than 20 years. That surge came after stocks recovered in June from a torrid May performance. The Dow soared 7.2% in June, its biggest gain for that month since 1938. The S&P 500, meanwhile, jumped 7.9% for the month, marking its best June performance since 1955. President Donald Trump and Chinese President Xi Jinping agreed not to impose new levies on U.S. and Chinese goods after meeting on the sidelines of the G-20 summit in Osaka, Japan on Saturday. Trump said the meeting went as well as it could have, noting: “We are right back on track.” Chinese state-run news outlet Xinhua said the two leaders agreed to “to restart trade consultations between their countries on the basis of equality and mutual respect.” Trump added the U.S. will ease restrictions on American companies from selling products to Huawei, a giant telecommunications company from China. The U.S. barred companies from selling to Huawei in May, citing national security concerns. The U.S. president also said China would “buy farm product.” Investors anxiously awaited the meeting between Trump and Xi as they looked for clues on whether the world’s largest economies would resume trade negotiations or if the conflict would be prolonged. Chetan Ahya, global head of economics at Morgan Stanley, described the meeting’s outcome as “an uncertain pause.” There is “no immediate escalation, but still no clear path towards a comprehensive deal,” Ahya said in a note Sunday. “As things stand, we lack clarity on whether real progress was achieved on the sticking points that caused talks to break down in the first place. Hence, our overarching conclusion is that the developments over the weekend on their own don’t do enough to remove the uncertainty created by trade tensions.” Comments from Larry Kudlow, director of the National Economic Council, added to the uncertainty around U.S.-China trade relations. Kudlow told Fox News on Sunday that Trump was not granting Huawei “general amnesty. ” He also said there is no timetable for when a deal might be finalized. The lingering uncertainty around U.S.-China trade relations will continue to dampen the outlook on corporate earnings, said Larry McDonald, editor of The Bear Traps Report. “There’s a substantial decay factor developing inside the S&P 500′s earnings picture,” McDonald said. “CFO’s cannot make decisions with a purgatory of uncertainty, endlessly ... hanging over the market. The equity rally is a screaming sell.” Calendar second-quarter earnings for the S&P 500 are expected to fall on a year-over-year basis, according to FactSet data. Analysts also lowered their third-quarter earnings forecast to show a contraction from the previous year, as profit expectations for multinationals with exposure to China have soured. China and the U.S. have been embroiled in a trade war for more than a year. In that time, the U.S. has slapped tariffs on more than $250 billion worth of Chinese imports. China has retaliated with levies of its own on U.S. products. In economic news, ISM manufacturing and construction spending data are expected at 10 a.m. ET. Asia Pacific markets mostly rose on Monday after U.S. President Donald Trump and Chinese President Xi Jinping agreed to hold off on slapping additional tariffs in an effort to resume trade talks. Mainland Chinese shares soared on the day. The Shanghai composite added 2.22% to about 3,044.90, while the Shenzhen component soared 3.84% to 9,530.46. The Shenzhen composite also added 3.464% to approximately 1,616.55. The CSI 300 index, which tracks the largest listed stocks on the mainland, added 2.88% to around 3,935.81. In Japan, the Nikkei 225 jumped 2.13% to close at 21,729.97. The Topix index also gained 2.17% to finish its trading day at 1,584.85. South Korea’s Kospi closed fractionally lower at 2,129.74. Hong Kong’s Hang Seng index was closed on Monday for a holiday, as protests rocked the city on the anniversary of its return to Chinese rule. Oil prices surged on Monday as OPEC and its allies looked on track to extend supply cuts until at least the end of 2019 at their meeting in Vienna this week. U.S. crude futures for August climbed $1.65, or 2.8% to $60.12 a barrel, after earlier hitting their highest in over five weeks at $60.28. Gold prices fell nearly 2% on Monday to their lowest in more than a week as the dollar strengthened and investors opted for riskier assets after the United States and China agreed to restart trade talks. Spot gold was down 1.7% at $1,384.81 per ounce, after falling to its lowest since June 20 at $1,381.51. U.S. gold futures dipped 1.8% to $1,388.20 an ounce.