Trade Concerns Drag on Markets

Equity Markets Slide on China-US Trade 

While the markets had been largely focused on earnings over the past few days, the potential addition of $200 billion more in tariffs on Chinese goods announced by the Trump Administration overnight was enough to push market sentiment to “risk-off”.  Equity markets felt the heat, with all three major indices down on the day.  The DJIA was the “biggest loser” sinking 0.88%, followed by the S&P falling 0.71%, and the NASDAQ dropping 0.55%.  The 10-year US Treasury note closed the day at a yield near 2.85% (unchanged).  The energy market took a big hit on fears the trade war could negatively impact global economic activity.  WTI crude futures settled 4.7% lower at $70.67/barrel.  In foreign exchange markets, the dollar (USD) was up on the trade tariff news, as it gained  0.6% against both the British Pound (GBP) and the Euro (EUR).

Inflationary Pressure Continues at Business Level

Key economic data releases on the day were highlighted by June’s producer price index, which reflected solid inflationary growth in the prices received by domestic producers of goods and services.  The 0.3% monthly increase beat market expectations of +0.2%, however was a decrease from May’s increase of 0.5%.  Energy prices were up 0.8% in the past month, while the cost of food decreased 1.1% over the same period. The core PPI also exceeded median forecasts, reported at +0.3% MoM.  Looking at producers’ inflation over the past year, overall producer prices have increased 3.4%  while core prices rose 2.8% over the past year.

Diplomatic Updates

There have been significant events on the diplomatic front with the NATO summit currently in progress in Brussels, as well as Secretary of State Mike Pompeo concluding his recent meetings with North Korea.  President Trump had raised the stakes on US allies when he said that “Germany is a captive of Russia” due to the dependence on Russian energy.  Germany imports almost 40% of it’s crude oil and nearly 50% of its natural gas from Russia.  “What good is NATO if Germany is paying Russia billions of dollars for gas and energy? Why are their [sic] only 5 out of 29 countries that have met their commitment? The U.S. is paying for Europe’s protection, then loses billions on Trade. Must pay 2% of GDP IMMEDIATELY, not by 2025,” Trump further elaborated in a tweet.

After all the fanfare and hopeful comments from the summit in Singapore between President Trump and Kim Jong Un in June, the recent follow-up meetings in North Korea have ended on a much different note.  “Look, this is a decades-long challenge, getting the North Koreans to make a fundamental strategic decision, which is that the nuclear weapons they possess today frankly present a threat to them and not security,” Pompeo said.  Much of the disappointment stems from a promised meeting between Mike Pompeo and Kim Jong Un which never materialized.  North Korea also found the talks challenging.  In a statement, KCNA, the state run news agency called the talks regrettable. “We expected the US to bring constructive measures to build confidence in accordance with the spirit of the US-NK summit. However, the attitude of the US in the first high-level talks held on the 6th and 7th was indeed regrettable.”