Navarro Backtracks, Markets See Business Rebound

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Navarro flips the market
EU and UK PMIs beat but fail to hit 50
Nikkei 0.50% Dax 2.19%
UST 10Y 0.71
Oil $40/bbl
Gold $1755/oz
BTCUSD $9610

Asia and the EU
EU flash PMI 47 vs. 42.4
UK PMI Services 47 vs. 50

North America Open
USD PMI Composite 9:45
USD New Homes Sales 10:00

Risk assets tumbled hard in early Asia session trade today only to quickly reverse as comments by White House advisor on trade Peter Navarro roiled financial markets and he quickly walked them back.

Mr. Navarro categorically stated in a Fox interview that the China trade deal was “over”. He then quickly denied them stating that they were taken out of context, although his words carried no ambiguity.

In any case, it was clear that Mr. Navarro clearly overstepped his bounds as Trump quickly chimed in that the trade deal remained in place and markets did a full rebound and even rallied about 50 basis points as risk-on flows resumed.

On the economic front, a series of PMIs from Europe and the UK came out slightly better than expected though failed to crack the 50 boom/bust level. According to Markit in Europe, “The eurozone economic downturn eased markedly for a second successive month in June as lockdowns to prevent the spread of the coronavirus disease 2019 (COVID-19) outbreak were further relaxed, according to provisional PMI® survey data. The month also saw a continued strong improvement in business expectations for the year ahead. “

In the UK Markit noted. “June data indicated a vastly improved overall picture across the UK private sector, with the downturn in total business activity continuing to steady after the record rate of decline seen at the height of the lockdown during April. Looking at the month-on-month change in the headline index, the rise since May (+17.6 points) was the largest since the start of the series in January 1998, which highlighted a decisive shift in momentum.”

The shift towards expansion in PMIs added to the recovery flows in early Europe and now the markets will look forward to the US data at 13:45 GMT to see if the momentum has turned in the US industry as well. The forecast calls for about a 10 point rebound from mid 30’s but if the PMI data can print close to 50 both equities and risk FX should like that news and the positive momentum could propel S&P towards 3200 while Nasdaq could set fresh highs above 10200 as the day progresses.

Boris Schlossberg
Managing Director

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