Market movers today

The US-China trade war continues to be the most important driver in financial markets. However, in the short term, we may not get much new information as no new measures are likely to be announced from either side. The next thing to look out for would be comments about a new round of talks or a potential phone call between Xi and Trump. It could initially be seen as positive. However, we would caution that the two sides seem quite far from each other on some key elements and we could end up in a war of attrition where it takes financial stress for the two sides to find a compromise.

On the data front we have a batch of US key figures this afternoon. The Philadelphia Fed business confidence index for May will give more clues to the development of the US manufacturing sector.

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We will also learn more about the state of the US housing market with the release of building permits and housing starts for April. The housing market has generally seen some improvement in recent months, most likely due to the decline in mortgage rates.

Selected market news

Yesterday, US April retail sales and industrial production figures missed expectations and point to a somewhat soft start to Q2. Across the Atlantic, German GDP growth rebounded to 0.4% q/q in Q1, after narrowly avoiding a recession in H2 18. Domestic demand was again the main growth driver, but part of the recovery in growth rates also reflects the unwinding of H2 18 temporary factors (car sector bottlenecks and low Rhine water levels). While it is encouraging that the domestic side of the economy continues to underpin the growth momentum, the near-term outlook for the German economy remains muted amid gloomy PMI readings, declining factory orders and an escalating trade war between two of Germany’s most important export markets.

Added to that, the threat of US car tariffs – with the deadline for Trump’s decision coming up on Saturday – is lingering in the background. However, news headlines yesterday suggested that Trump might opt to delay the tariffs by up to six months, as long as negotiations for a trade deal with the EU and Japan are ongoing. However, the executive order has not yet been officially signed by President Trump and even then uncertainty would just be delayed rather than resolved.

Risk sentiment generally remained under pressure as markets grapple with the implications of the intensifying Sino-American trade war, with Trump’s latest decision to effectively ban Huawei from selling technology into the American market further deepening the rift. Although shares in US and European automakers cheered the delayed car tariffs, Asian stocks remain in the red this morning and S&P 500 futures point to a lower opening. Yesterday, 10Y Bund yields fell to their lowest level since the autumn of 2016, but pared gains later in the day as news hit about Trump’s decision to delay car tariffs.

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