(08 JULY 2019)DAILY MARKET BRIEF 1:Weak Signals on a Summer Monday

European markets have walked into Asian equity markets in the red. Fridays strong, US labor reports has put speculation of a 50bp Fed cut in July on hold. The market had fully priced in a 25bp cut this month but talk of additional easing has slowed. With nearly 100bp cut pricing in for 2019, a resilient US economy will put this forecast in jeopardy. Bond yields rebounded marginally on the back of the unexpected strong US job market data. While the US job growth has slowed, it remains robust to consider ten years of economic expansion. US 10-year treasury yields climbed 8bp to 2.03% giving the USD a boost against g10 currencies. This week Trade uncertainties have reappeared as a primary driver. Trade talks between China and the US are expected to begin as soon as this week. News flow indicates that Huawei will be the key theme in the next few rounds of trade discussion.

Last week’s goodwill generated by the G20 statement, condemning protectionism and promise that central banks would support economic expansion, has faded (since nothing had fundamentally changed). What is left is the negative effect of trade worries. Incoming data from Germany, indicates the engine of economic growth for Europe, continues to falter. Germany’s auto sectors specifically have been damaged by a lack of demand from China. At this point, even ECB stimulus will be inadequate to support Germany’s elevated economic forecasts. Even the expectation of easing monetary policy has not materially de-escalation in trade tensions. Which is weighing on confidence and investment. Sentiment around European equities has improved in anticipation of looser monetary policy. However, a deeper repricing will have to be accompanied by economic recovery, which prospected has weakened. Summer trading and lack of real news flow suggest that rogue volatility is likely rather than pure directional trading.