The Friday Market Minute

  • Global stocks mixed as US-China tariffs on $68 billion in goods becomes official.
  • Potential thaw in tariff threats on cars, however, helps Japan's Nikkei 225 book solid Friday gains.
  • European stocks, Wall Street futures cautiously higher ahead of today's June employment report.
  • U.S. Treasury yield curve continues to flatten after Fed Minutes mention trade-related slowdown concerns.

Market Snapshot

Global stocks booked modest gains in early Friday trading even as China and the United States exchanged billions in tariffs in the opening round of what officials in Beijing called "the largest-scale trade war in economic history."

The state-run China Daily newspaper confirmed the government will respond to the U.S. imposition of a 25% levy on 818 China-made goods with around $34 billion, which kicked-in at midnight local time. China's retaliation essentially ensures that President Donald Trump will follow-through on his threat to boost those tariffs to $50 billion, and possibly as high as $500 billion, as he continues to press for generational changes in the trade relationship between the world's two biggest economies.

That said, various reports of a thawing in the trade war rhetoric between Washington and its various economic allies offered stocks a boost in overnight trading, as did a modest weakening in the U.S. dollar and softer oil prices, although investors are likely to remain reluctant to add to risky positions ahead of today's June non-farm payroll report, which is expected to show U.S. employers added 190,000 news jobs to the economy last month. 

Auto stocks drove decent gains in Asia stocks Friday, following yesterday's report from Handelsblatt newspaper that said President Trump was prepared to pursue a "zero tariff" solution with Brussels for the sector and German Chancellor Angela Merkel appeared to endorse the idea, as long as it included vehicles from other jurisdictions.

Japan's Nikkei 225 benchmark added 1.12% by the close of the Friday session, with carmakers Toyota Motor Co. (TM) and Honda Motor Co.  (HMC) leading the advancers. The region-wide MSCI Asia ex-Japan index was also firmly in the green, rising 0.7% towards the end of the session powered by gains in South Korea and Shanghai. 

European stocks were also firmer at the start of trading, but gave back early gains with the Stoxx Europe 600 benchmark slipping 0.01% by mid-day in Frankfurt as benchmarks around the region edged into the green, boosted in part by a stronger-than-expected reading for industrial output in Germany in the month of May, which rose 2.5%, the most since November. 

Early indications from U.S. equity futures point to broader caution on Wall Street, although sentiment could change quickly if the June jobs numbers, which could be the first to reflect any sort of trade war-related slowdown in the economy, top forecasts.

That said, the initial outlook appears neutral, with contracts tied to the Dow Jones Industrial Average  down 57 points from their Thursday close and those linked to the S&P 500 suggesting a 2.7 point slip for the broader benchmark. 

Bond market signals, however, continue to signal deeper economic concern than we're seeing in stocks, a view that looks increasing interesting given that last night's Minutes of the Federal Reserve's June policy meeting noted that officials  noted that uncertainty and risks associated with trade policy had intensified and were concerned that such uncertainty and risks eventually could have negative effects" even as they hiked rates in the face of moderately faster inflation.

Benchmark 10-year U.S. Treasury note yields were marked at 2.847% in early European trading while 2-year notes were seen at 2.557%, narrowing the gap between the two to just 29 basis points, the smallest since 2007, as the so-called "yield curve" moves towards inversion, which is generally seen as a sign of potential recession.

Global oil markets were mixed in early Friday trading, as well, with investors grappling with a raft of headlines and event risks surrounding both future crude demand and immediate delivery owing to both the now-escalated trade war between the U.S. and China, supply disruptions in Libya and Venezuela and impending U.S. sanctions on delivers from Iran.

Brent crude futures contracts for September delivery, the global benchmark, were seen 53 cents lower from their Thursday close at $76.86 per barrel while WTI contracts for August delivery were marked 20 cents lower at $72.74 per barrel.