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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.

John Stoltzfus


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.

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