China-US trade war weighs on investor sentiment and the stock market anticipates losses

TL;DR: Tension between China and the US escalates as a trade war begins with cloud computing, precious metals and semiconductors on the front line. Asia shares are lower and futures predict that Europe US markets will also report small losses today.

📰 What’s moving markets?

• China’s Hang Seng is down 1.4% today while the Nikkei 225 and Nifty 50 report small losses following an announcement that the US getting ready to limit Chinese companies’ ability to use cloud computing services in the US.

• US futures, EuroStoxx 50 and FTSE 100 are also c. 0.20% lower in early trading this morning as China has announced plans to control the export of precious metals required to make semiconductors. This retaliation was following an earlier announcement from the US and Netherlands that they might limit exports of chip manufacturing tools to China.

• Vix (the US volatility index) fell to the lowest level in the past 3 years (since the onset of the Covid-19 pandemic) on Monday and is currently at 13.70.

• Oil has given up some of its gains this week with Brent Crude now trading at $75.9.

• Currency moves have been muted although Ethereum has rallied 1.23% against the dollar over the past couple of days and has made gains of 63% year-to-date. Bitcoin is up 86% year-to-date.

📊 Chart of the day

Real wages (controlled for inflation) have decreased notably in the US.

Nonfarm Business Sector: Real Hourly Compensation for All Workers since 1945

📅 Coming up this week

Monday 3rd July

• China Manufacturing PMI expected: 50.2, last: 50.9, actual: 50.5

• Germany Manufacturing PMI expected: 41.0, last: 41.0, actual: 40.6

• UK Manufacturing PMI expected: 46.2, last: 46.2, actual: 46.5

• US Manufacturing PMI expected: 47.2, last: 46.9, actual: 46.0

Tuesday 4th July

• Reserve Bank of Australia Base Rate Decision expected: 4.35%, last: 4.10%, actual: 4.10%

Wednesday 5th July

• Euro Zone PPI (YoY) expected: -1.4%, last: 1.0%

Thursday 6th July

• Euro Zone Retail Sales (MoM) expected: 0.2%, last: 0.0%

• US ADP Employment Change expected: 240k, last: 278k

• US JOLTS Job Openings expected: 9968k, last 10103k

Friday 7th July

• US Change in Nonfarm Payrolls expected: 225k, last: 339k

• US Unemployment Rate expected: 3.6%, last: 3.7%

• US Average Hourly Earnings (MoM) expected: 0.3%, last: 0.3%

• US Labor Force Participation Rate expected: 62.6%, last: 62.6%

📈 The markets at a glance