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Reliance Trading Co. Limited – US Markets Cautious Ahead of G20 Summit in Japan
U.S. stocks were mixed as investors digested a spate of concerns abroad and awaited signals of progress in U.S.-China trade talks.
By: Reliance Trading Co. Limited
Despite stocks' lack of conviction Monday, U.S. equities had surged through the beginning of June as central bankers around the world expressed a willingness to implement looser monetary policy to help support their respective economies. The S&P 500 rose 7.2% in June through Friday's close, representing its best start to the month on record, based on data extending back to 1960.
Meanwhile, geopolitical tensions continued to test investors.
President Donald Trump said Monday that he would impose sanctions on Iran, as a response to Iranian forces downing an unmanned U.S. drone last week, according to multiple reports. Further impositions on the country would extend a pressure campaign the U.S. began last year, after Trump removed the U.S. from a 2015 nuclear deal and imposed sanctions to try and push Iran to accept limits to its nuclear program. The sanctions have hit Iran's key oil sector, and are part of the Trump administration's ambitions to send Tehran's oil exports to zero.
Trump's threats come after a spate of recent attacks on oil tankers in or near the Strait of Hormuz, a major passageway for oil transit. The U.S. has pinned responsibility on Iran for these events. Last week, Iranian forces downed a U.S. spy drone, reportedly spurring Trump to order a military strike again Iran before reversing his decision. Crude oil prices fluctuated amid mounting tensions with one of the world's top crude exporters.
China also remains in the crosshairs. The Trump administration is reportedly considering requiring that 5G cellular equipment to be used in the U.S. be designed and manufactured outside of China, Wall Street Journal reported Sunday, citing unnamed people familiar with the matter. Such a move would require force companies that supply equipment to U.S. wireless carriers, such as Nokia and Ericsson, to move operations out of China, the WSJ noted.
Later this week, Trump and China's Xi Jinping are set to meet at the G20 summit in Osaka, Japan, which takes place from June 28 to 29. Trump wrote in a Twitter post last week that he had spoken with Xi over the phone and intended to have an "extended meeting" with the leader this week.
While the meeting will be a focal point for investors, this week, it is not likely to yield a major breakthrough in the ongoing trade war. It may, however, lay the groundwork for future progress, some analysts said.
"Our expectation for the G20 meeting is that both sides will commit to re-engage to reach an eventual agreement," Reliance Trading wrote in a note. "This would likely involve a commitment by the U.S. to temporarily refrain from increasing tariffs."
However, "some additional tariff escalation is more likely than not" even as talks continue, Reliance added.
The Office of the U.S. Trade Representative is holding hearings through Tuesday to discuss previously proposed tariffs on approximately $300 billion worth of Chinese products.
Eldorado Resorts has agreed to buy Caesars Entertainment in a cash-and-stock deal valued at about $8.58 billion, which would create one of the largest gambling consortium's in the country. Eldorado is purchasing all of Caesar's shares outstanding for $12.75 each in cash and Eldorado stock, representing a 28% premium from Caesar's closing price Friday. The deal has an about $17.3 billion value including debt, according to a statement. Caesars will retain its name in the new combined company and will continue to trade on the Nasdaq.
Daimler AG issued its third downgrade to guidance in 12 months, saying Sunday that it expected its 2019 operating profit to come in near last year's level, versus previous guidance for a modest earnings gain for the year. The automaker said it expects a return on sales for Mercedes-Benz Vans for the year to be negative 2% to negative 4%, down from previous guidance to flat to up 2%. Daimler said the dimmer outlook is a result of "an increase in expected expenses" as a result of ongoing proceedings stemming from allegations of distorting emissions tests.
Texas manufacturers reported a sharp decline in their perceptions of business conditions in June, according to the Dallas Federal Reserve's monthly manufacturing activity survey. The index tracking manufacturers' perceptions of broader business conditions fell to a three-year low of -12.1, from -5.3 in May. Consensus economists polled by Bloomberg expected the index to improve to a reading of -2.0 in June. The index measuring uncertainty in companies' outlooks climbed to 21.6, the highest level since the question was added to the survey in January 2018.
Meanwhile, factory activity in Texas expanded in June. The index measuring production output rose by 1.6 points to 8.9 in June, pointing to slight growth acceleration from May.
The Chicago Federal Reserve's National Activity Index registered a reading of -0.05 in May, an improvement from a downwardly revised -0.48 in April. The pickup in economic growth for the month was led by an advance in production-related indicators, the Chicago Fed said in a statement. The index comprises a weighted average of 85 indicators of economic activity, including production and income, employment, personal consumption, and inventory data. Negative readings indicate below-average growth.
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