A positive start to the second half

Trade truce lifts risk

A weekend announcement that US and China intend to suspend the ongoing trade war and return to the negotiating table gave risk a timely boost as July and the second half of 2019 got underway. US indices rose between 0.52% and 0.85%, with the NAS100 outperforming, while Japan equities jumped 1.33% and the China50 index surged 2.43%. Hong Kong markets were closed for a public holiday to commemorate the handover from Britain in 1997.

China50 Daily Chart

Source: OANDA fxTrade

The China50 index burst through the 78.6% Fibonacci retracement of the April-May drop at 13,824 with ease and now probably has the May 19 high of 14,240 in its sights.

Currency markets did not quite reflect the same positivity about the recommencing of trade talks, with the Australian dollar failing to gain any upward momentum, though the yen was sold as safe haven flows reversed. AUD/USD slid 0.22% to 0.7005 while USD/JPY rose 0.3% to 108.24. The offshore yuan outperformed, with USD/CNH falling 0.4% to 6.8400 after touching just below 6.8200, the lowest level since May 9.

USD/CNH Daily Chart

Source: OANDA fxTrade

China PMIs disappoint

The Australian dollar’s weak performance could be attributed to the June manufacturing PMIs out of China. While the official reading, which was released on Sunday, was unchanged from May’s 49.4, expectations were a little bit more optimistic of a rebound. Then today’s release of the Caixin equivalent saw the index drop to 49.4 from 50.2, with expectations of a slide to just 50.0. The hefty miss saw the index in contraction territory for the first time since February and the lowest print since January.

Slow start to payrolls week

The major event on today’s calendar will likely be the release of the ISM manufacturing PMI for June. The Markit flash PMI for June disappointed with a bigger-than-expected drop to 50.1. The ISM reading is expected to show the same trend, with the slide to 51.0 anticipated from 52.1 in May.

Prior to the US releases, German and Euro-zone unemployment is seen unchanged at 5.0% and 7.6%, respectively in June, and we have speeches from ECB’s De Guindos and Lane.

The full MarketPulse data calendar can be viewed at https://www.marketpulse.com/economic-events/

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