Risk on the menu as new month kicks off


US equity markets rallied Friday after Donald Trump stopped short of specifying tough sanctions on China. Index futures fell at the Asian open and were still off the highs reached Friday, possibly on the back of reports that China is said to stop importing some US soybeans. But it was not completely risk-off.



  • The new month has begun with risk still on the menu. Investors are continuing to largely ignore the escalating US-China tensions, the global recession and ongoing riots in the US, among other risks. Sentiment remains supported due to the easing of lockdown measures and because of ongoing central bank support. The vast central bank QE programmes are helping to keep bond yields under pressure, driving yield-seeking investors into riskier equity markets, while at the same time increasing the appeal of noninterest-bearing precious metals. Gold and silver have also been rising due to weakness for the US dollar, with the Dollar Index closing lower for the second consecutive month in June and was down for the sixth consecutive session at the time of writing.
 
  • US equity markets rallied into the close on Friday after Donald Trump stopped short of specifying tough sanctions on China. Index futures fell at the Asian open and were still off the highs reached Friday, possibly on the back of reports that China is said to stop importing some US soybeans. But it was not completely risk-off and given how resilient the markets have been, I wouldn’t be surprised if we saw new multi-week highs later on.
 
  • Indeed, following a 12.7% rally in April, the S&P 500 closed May with a solid 4.5% gain, while the tech-heavy Nasdaq 100 gained 15.2 and 6.2 percent respectively over the two months. So, there is no doubt that the momentum has been bullish. At the same time, traditional haven assets have also rallied with silver surging nearly 20% in May and gold adding a more modest 2.6% after a 7.0% rise in April. Brent crude oil jumped 40% the OPEC+ cut production and economies re-opened.
 
  • At the start of the month, the near-term focus will remain on the US-China situation, as well as the global economy. We have plenty of macro data to look forward to this week, as we highlighted in our week ahead preview on Friday HERE.
 
  • The manufacturing PMI data released at the start of this week have been more or less in line with the expectations for the UK, Spain and Eurozone. However, Italy’s PMI jumped to 45.5 from 31.1 compared to 35.5 expected. China’s PMI was above 50.0 again, suggesting small expansion. However, new export orders dropped to 35.3, suggesting global demand was very weak.
 
  • US data coming up at 15:00 BST:
    • ISM manufacturing PMI expected to increase from 41.5 to 43.5
    • Construction Spending -6.5% m/m vs. +0.9% last
 



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