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The research and media war of narratives continue to add to confusion in equity markets. An official report on Friday revealed that the expected fall of 2% in China exports was surprisingly high, the actual number being a fall in exports of only 1.3% in June. This is of course, dollar-denominated exports. Also, the euro-zone release of industrial production rose more than expected in May, again this data released on Friday. The result was pan-European Stoxx 600 moving into positive territory at the closing bell. The EU statistics agency reported that euro-zone factory output grew at 0.9% in the month of May, far exceeding the 0.2% nuber agreed by market analysts.
We have seen weeks of negative releases and of course, have become accustomed to market news that points to weaker economic growth in the US, China and especially Europe – the surprisingly strong releases placed a solid bid in US and European markets. Of course with the US equity markets getting a boost on expectations of “an insurance rate cut” by the end of July, effectively confirmed by the Central Bank Chair in open discussions last week. Mr Powell alluded to global risks that could trigger a cut.
Our Views: While we are focused on the US earnings reports due over the coming weeks, we continue to view the US-China trade talks as “ongoing work with little progress” as both China and the US have long-term goals that suggest they both want concessions from the other and are happy to wait months. The notion that trade talks can cure a deficit that is structural in nature should be taken into account – I believe it could take years to fix, really.
Also, note that in our discussions we have been solidly bearish Nikkei 225 at 21,700 and higher while our bearish stance elevates in S&P 500 from 2,970 to 3,000 and higher. We have held this view for weeks and remain skeptical of the break higher.