US suspends China tariffs as global investors wait for next cue

Investors face continued uncertainty over global trade policies, Italian politics and the direction of interest rates. 

The US has agreed to suspend tariffs on Chinese imports while the two countries hammer out details of a deal to reduce the merchandise trade deficit.

“We’re putting the trade war on hold,” US Treasury Secretary Steven Mnuchin said in a weekend interview on Fox News. 

The US has demanded China reduce its trade advantage by $US200 billion or more. China is ready to step up purchases of US goods but has refused to agree on a specific amount.

In the week ahead, readings on US home sales, consumer sentiment and durable goods orders will signal the strength of the economy.

The UK will see new inflation data while the eurozone gets a report on services and manufacturing activity.

“There are a few fires at the moment that investors need to take on board,” says Olivier Marciot, a multi-asset portfolio manager at Unigestion, of the trade tensions.

“We still don’t think it will be material for now but it will be a strong headwind to equity markets as long as headline risk remains as strong as that.”

Wall Street ends down for week
US stocks stalled on Friday, posting weekly losses as the Dow Jones Industrial Average edged up 1.1 points, or less than 0.1%, to 24,715.09. The S&P 500 declined 0.3% to 2712.97 and the Nasdaq Composite lost 0.4% to 7354.34. For the week, the Dow fell 0.5%, the S&P 500 lost 0.5% and the Nasdaq shed 0.7%.

Rising crude-oil prices and interest rates stoked fresh investor bets on inflation. Dividend-heavy shares of utilities and real-estate companies in the S&P 500 both posted weekly losses of more than 3%.

The yield on the benchmark 10-year US Treasury note settled at 3.067%, up from 2.971% a week ago.

US crude for June delivery edged down 0.3% to $US71.28 a barrel, although prices remained up 18% for the year.

Data continue to suggest the US economy is expanding at a slow and steady pace, even as reports have pointed to some loss of momentum in Europe and Japan.

Consumer spending picked up at the start of the northern spring, undeterred by rising petrol prices. The solid economy has helped retailers like Macy’s, whose shares jumped 15% for the week after a stronger-than-expected earnings report.

“Everyone is looking for the cloud in the sky but the outlook is still positive,” says JJ Kinahan, chief market strategist at TD Ameritrade.

Italian market falls
In Europe, Italy’s FTSE MIB index fell 1.5% after two anti-establishment parties seeking to form a governing coalition agreed to scrap or dilute pension reforms. However, the Stoxx Europe 600 posted a 0.6% weekly advance.

For markets, “the best case is inertia and the worst case is passing measures that will have a huge impact on Italian debt,” says Unigestion’s Mr Marciot.

Italy is likely to keep the euro under pressure and potentially encourage the European Central Bank to exercise more caution in normalising monetary policy, he adds.

IHS Markit ’s composite purchasing managers index for May will provide further clues. Economists expect to see a small drop, which would suggest any second-quarter rebound in growth is likely to be modest.

The Office for National Statistics releases April UK consumer-price inflation after price pressures cooled more than expected in March. Consumer prices rose an annual 2.5% in March, down from 2.7% in February but still well above the Bank of England’s 2% target.

US house sales tipped to drop
In the US, the National Association of Realtors releases April existing home sales data. Sales of previously owned homes increased slightly in March from a month earlier but were below previous year’s levels. Economists are expecting a 0.2% drop in sales.

The Commerce Department releases April durable-goods figures on Friday. March’s report pointed to a pickup in demand for long-lasting factory goods. But it also showed business investment stalling despite a late-2017 tax overhaul. Economists expect an overall decline of 1.5%.

The University of Michigan publishes its final consumer sentiment index reading for May.

The preliminary report showed Americans felt less confident about current economic conditions but more confident about the future. Economists think the flatlining sentiment will continue.

In other international developments, the International Monetary Fund has moved to begin negotiations on a bailout of Argentina.

It is near the brink of a crisis as the Argentine peso has fallen drastically against the US dollar. Argentina has also been dogged by persistent budget deficits, high inflation and trade imbalances.

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