The Wednesday Market Minute

  • Global stocks drift lower in thin volumes as investors brace for first major round in global trade war on Friday.
  • China stocks extend declines ahead of Friday tariff deadline, but yuan steadies after comments from the PBOC.
  • European stocks edge higher after stronger-than-expected PMI data but trade war concerns continue to weigh on sentiment.
  • Oil prices mixed, but API draw down and OPEC supply disruptions keep market's bullish tone in place.

Market Snapshot

Global stocks drifted lower Wednesday, although volumes were thin owing to the U.S. Fourth of July holiday, as investors continued to favor fixed income investments over equities amid concerns that the brewing trade war between Washington and its major economic allies is set to escalate in the coming days.

China and the U.S. will exchange fresh tariffs on $34 billion worth of goods this week, with reports suggesting Beijing plans to implement its levies at midnight local time, usurping President Donald Trump's deadline by 12 hours, in a move that could suggest the government is ready to respond to any additional tariffs announced by the White House. 

With growth metrics easing, albeit slowly, in the world's second-largest economy, the concern over a quickly escalating "tit-for-tat" trade war again weighed heavily on Chinese stocks Wednesday, sending the Shanghai Composite another 0.9% lower by the close of trading and deeper into bear market territory. China's bluechip CSI 300 was marked 1.3% to the downside while the offshore Hang Seng index fell 1.02%.

China's yuan, however, was modestly stronger at 6.6318 after People's Bank of China Governor Yi Gang said he was "paying attention" to "recent fluctuations in foreign exchange markets."

Chinese yuan rebounded against USD overnight after PBoC governor, Yi Gang, affirmed that China will keep its currency stable at an equilibrium level and PBoC will maintain a prudent, neutral policy stance, chart @csresearch pic.twitter.com/Rdjulslo7b

— ACEMAXX ANALYTICS (@acemaxx) July 4, 2018

The moves in China took the broader Asia complex lower, with the region-wide MSCI Asia ex-Japan index slipping 0.41% at 530.98 points as the session drew to a close while Japan's Nikkei 225 edged 0.31% lower to end the day at 21,704.04 points.

The down draft from Asia markets, which saw stronger bids for benchmark 10-year Treasury notes, taking yields to 2.83%, brought a defensive tone to the European trading session, where 10-year German bund yields fell to 0.31% and the euro edged modestly higher to 1.1665 amid the safe-haven flows.

Equities, however, pared an opening bell decline and pushed into the green, with the Stoxx 600 index nudging 0.04% higher to 380 points by late afternoon in Frankfurt, with markets in Germany and France slipping posting modest gains after a stronger-than-expected reading for private service sector growth over the month of June.

IHS Markit's Final Composite Purchasing Managers' Index bumped to 54.9 from 54.1 in May, while the service sector reading jumped to 55.2 from 53.8 and well ahead of the 50 point mark that generally signals economic growth.

"The upturn in the pace of economic growth and resurgent price pressures adds support to the ECB's view that stimulus should be tapered later this year, but the details of the survey also justify the central bank's cautious approach to policy," said IHS's chief economist Chris Williamson. "In particular, a weakening in business optimism to the lowest for over 1-1/2 years reflects intensifying nervousness about the outlook for the economy, notably in manufacturing, as trade-war talk escalates."

Eurozone services #PMI up to 55.2 (53.8 in May), while Composite Output #PMI also picks up. Ireland leads the rankings of all euro area countries. More here: https://t.co/pGzWT6gl9X pic.twitter.com/M3o0r4PJ9W

— Markit Economics (@MarkitEconomics) July 4, 2018

Britain's FTSE 100, however, was held down by a stronger pound, which rose past the 1.3200 mark against the greenback after the strongest service sector PMI reading in more than nine months and extended bets that the Bank of England could reconsider its rate hike path when it meets again in early August. 

Global oil markets extended gains again Wednesday, following data from the American Petroleum Institute yesterday that should domestic crude stocks fell by 4.5 million barrels in the week ending June 29, marking the third consecutive seven-day decline.

Supply disruptions in Libya, as well as production delays in Venezuela and impending U.S. sanctions on crude sales from Iran have added further upward pressure to global oil prices, with even a weekend Tweet from the President suggesting Saudi Arabia is ready to increase output failing to halt the market's bullish tone.

Brent crude contracts for September delivery, the global benchmark, were seen 31 cents higher from their Tuesday close in New York and changing hands at $78.07 per barrel while WTI contracts for August delivery were marked 39 cents lower at $73.75 per barrel.