Skip to Main

Market Strategy 7/1/2019

  • John Stoltzfus
  • July 1, 2019

Progress Not Perfection

Markets likely to reflect positively on the US/China trade truce and a return to the negotiation table

Key Takeaways

  • News of a trade/tariff war truce and resumption of negotiations between the US and China saw markets rise in Asia in early Monday trading. Futures markets in Europe and the US were also signaling higher openings. Safe haven assets moved lower on the trade news.
  • We expect equity markets to become increasingly dependent on developments in the trade negotiation process.
  • Investors can anticipate a brace of important economic data this week culminating in Friday’s nonfarm payrolls report.

As we prepared to publish on Sunday night stocks in Asia were moving higher reflecting positively on the meeting between the Presidents of the US and China at the G-20 Summit in Osaka. A truce in the trade/tariff war and an agreement to resume talks so far has been taken by the markets as providing opportunity for negotiations to move forward towards resolution and avoiding an acceleration of tariffs and subsequent retaliation without further toll on the economies of the combatants and their trading partners.

However, we expect that some level of guarded optimism among investors, traders and observers will keep any “back to risk-on” move by the markets connected to the progress made over the weekend to be relatively tempered and quite dependent on subsequent news about any progress (or lack thereof) as negotiations get underway again. Issues of cybersecurity and national security will likely add to the complexity of this next round of trade negotiations.

china china

Skeptics are already pointing to the failure of the talks that resulted in an earlier trade/tariff truce (those that came out of the G20 meeting in Buenos Aires) as providing little hope for a resolution near term. Optimistic observers of the developments over the weekend point to the fact that both leaders took time to meet and suggest that both sides may have learned enough from the failure of their earlier negotiation to avoid making the same mistakes twice.

With the trade war now in its second year, economic data worldwide is showing with greater clarity than it did in year one the effects of the tariffs on the economies of the US and China as well as the collateral damage to their trading partners across the globe. Whether in the reluctance of some businesses to execute plans that were made before the trade/tariff war began, or in weakening manufacturing data from across the regions of the world, evidence is mounting to challenge any belief that trade/tariff wars can be low cost affairs.

As stocks moved higher in Asia at the start of the trading week a number of safe haven assets including US Treasuries, gold and the Japanese yen slipped as stocks caught a bid. Oil prices moved higher on news of an agreement between Russia and Saudi Arabia to extend current production levels into the start of 2020.

Quotation from Aenean Pretium

We continue positive on prospects for global equities with an outlook that keeps us overweight stateside stocks while maintaining meaningful exposure to developed and emerging markets…

The Week Ahead

In a holiday abridged trading week stateside investors will have plenty to keep them occupied whether at their offices or on their laptops on the beach. Likely they will measure the results of the first half of 2019 that repeatedly surprised to the upside on a number of fronts despite challenges brought on by the trade/tariff war that lasted longer than many expected.

Uncertainty about the direction of monetary policy dogged investors in much of the first half and likely will continue into the second half as the resolution of the trade war drags on.

This week investors will find a brace of important economic data crossing the transom including data on manufacturing, services, unemployment, job and wage growth—culminating on Friday with the non-farm payroll report. Bloomberg’s survey of economists is calling for 160,000 jobs to have been added in June in contrast to May’s disappointing 75,000 worker gain. A second straight month of disappointment in jobs added could convince monetary policy officials to cut the Fed’s benchmark rate at its next FOMC meeting in July or sometime later in the third quarter should weakness appear likely to persist.

We continue positive on prospects for global equities with an outlook that keeps us overweight stateside stocks while maintaining meaningful exposure to developed and emerging markets with at least some exposure to frontier markets (see page 9 of this report for our global asset allocation model).

We wish a happy and safe Independence Day to our US readers and a happy Canada Day to our Canadian readers.

John Stoltzfus of Oppenheimer Asset Managment Inc.
Name:

John Stoltzfus

Title:

Chief Investment Strategist, Oppenheimer Asset Management Inc.

John is one of the most popular faces around Oppenheimer: our clients have come to rely on his market recaps for timely analysis and a confident viewpoint on the road forward. He frequently lends his expertise to CNBC, Bloomberg, Fox Business, and other notable networks.

Hide Bio
Learn More

Other Disclosures

This report is issued and approved by Oppenheimer & Co. Inc., a member of all Principal Exchanges, and SIPC. This report is distributed by Oppenheimer & Co. Inc., for informational purposes only, to its institutional and retail investor clients. This report does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such offer or solicitation would be prohibited. The securities mentioned in this report may not be suitable for all types of investors. This report does not take into account the investment objectives, financial situation or specific needs of any particular client of Oppenheimer & Co. Inc. Recipients should consider this report as only a single factor in making an investment decision and should not rely solely on investment recommendations contained herein, if any, as a substitution for the exercise of independent judgment of the merits and risks of investments. The strategist writing this report is not a person or company with actual, implied or apparent authority to act on behalf of any issuer mentioned in the report. Before making an investment decision with respect to any security discussed in this report, the recipient should consider whether such investment is appropriate given the recipient's particular investment needs, objectives and financial circumstances. We recommend that investors independently evaluate particular investments and strategies, and encourage investors to seek the advice of a financial advisor. Oppenheimer & Co. Inc. will not treat non-client recipients as its clients solely by virtue of their receiving this report. Past performance is not a guarantee of future results, and no representation or warranty, express or implied, is made regarding future performance of any security mentioned in this report. The price of the securities mentioned in this report and the income they produce may fluctuate and/or be adversely affected by exchange rates, and investors may realize losses on investments in such securities, including the loss of investment principal.

Oppenheimer & Co. Inc. accepts no liability for any loss arising from the use of information contained in this report. All information, opinions and statistical data contained in this report were obtained or derived from public sources believed to be reliable, but Oppenheimer & Co. Inc. does not represent that any such information, opinion or statistical data is accurate or complete and they should not be relied upon as such. All estimates and opinions expressed herein constitute judgments as of the date of this report and are subject to change without notice. Nothing in this report constitutes legal, accounting or tax advice. Since the levels and bases of taxation can change, any reference in this report to the impact of taxation.

 

Investment Strategy should not be construed as offering tax advice on the tax consequences of investments. As with any investment having potential tax implications, clients should consult with their own independent tax adviser.

This report may provide addresses of, or contain hyperlinks to, Internet web sites. Oppenheimer & Co. Inc. has not reviewed the linked Internet web site of any third party and takes no responsibility for the contents thereof. Each such address or hyperlink is provided solely for the recipient's convenience and information, and the content of linked third party web sites is not in any way incorporated into this document. Recipients who choose to access such third-party web sites or follow such hyperlinks do so at their own risk. The S&P 500 Index is an unmanaged value-weighted index of 500 common stocks that is generally considered representative of the U.S. stock market. The S&P 500 index figures do not reflect any fees, expenses or taxes. This research is distributed in the UK and elsewhere throughout Europe, as third party research by Oppenheimer Europe Ltd, which is authorized and regulated by the Financial Conduct Authority (FCA). This research is for information purposes only and is not to be construed as a solicitation or an offer to purchase or sell investments or related financial instruments. This report is for distribution only to persons who are eligible counterparties or professional clients and is exempt from the general restrictions in section 21 of the Financial Services and Markets Act 2000 on the communication of invitations or inducements to engage in investment activity on the grounds that it is being distributed in the UK only to persons of a kind described in Article 19(5) (Investment Professionals) and 49(2) High Net Worth companies, unincorporated associations etc.) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended). It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. In particular, this material is not for distribution to, and should not be relied upon by, retail clients, as defined under the rules of the FCA. Neither the FCA’s protection rules nor compensation scheme may be applied. This report or any portion hereof may not be reprinted, sold, or redistributed without the written consent of Oppenheimer & Co. Inc. Copyright © Oppenheimer & Co. Inc. 2015.