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Wall Street to Edge Lower on Protests and China-U.S. Woes

June 2, 2020
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Protests against racial discrimination

Protests against racial discrimination taking violent tone and escalating China-U.S. tensions weigh down the market. 

Summary: Global equities are off to a positive start for the week as various economies across the risk sentiment continue to remain well supported over the move by various economies from across the globe to restart post lockdown.

As President Donald Trump left trade deal untouched during his retaliation against China last week when suspending special trade rights enjoyed by Hong Kong, caution among global traders greatly eased up, adding strength to broad market risk sentiment. Major indices and key equities in Asian markets were near three-month highs.

European market saw major indices and key equities open positive and retain positive bias across the day as bulls remained fundamentally supported over relief from US President Donald Trump’s response to China. Similar to equity markets, currency markets also saw major currencies matched against USD cheer the decline in Greenback’s value over-improved risk sentiment. 

Rare Metals: While broad market investor sentiment shows a high level of risk appetite and cautious tone has waned compared to Friday, cues stemming from escalating China-U.S. tensions keep demand for safe-haven assets (rare metals) fundamentally underpinned. This helped silver trade positive while gold scaled fresh 7-day highs. 

Crude Oil: The price of crude oil futures trading in the international market was positive, with both WTI and Brent futures scaling fresh multi-month highs in Asian and European market hours today. Spot WTI scaled high of $12.91 p/b while spot brent tested $37.42 p/b and consolidated near intra-day highs given improved demand outlook supported by healthy risk sentiment in the global market.  

DXY: The US Dollar index, which measures the strength of US Greenback against six major rivals in the global market, teased fresh monthly lows today. As US President Trump’s response to China was a relief to global investors, and support package from Fed and the government kept the US economy underpinned, improved risk sentiment amid major economies across globe reopening eased safe-haven demand, causing US Dollar to lose its foothold against its global rivals with each passing day. 

On The Lookout: The main focus of traders as focus shifts to North American market hours is the escalation of tensions between China and the USA and full-blown protests in US states over the death of black males in US prison causing outcry against racial discrimination to reach its peak till date. 

Following President Trump’s response to China’s new security law imposed on Hong Kong, China has retaliated by calling for the agricultural and food industry to stop purchasing US agricultural products as it reassesses the situation. It remains to be seen how the trade war will proceed as either side breaking the recently signed trade deal agreement would be a major blow for both US and the global economy.

President Trump has to work hard to prevent loss in the upcoming election, given the fact that his actions led to a huge economic crisis in the US and abroad even before COVID-19. With each passing day bringing elections close-by, it has become a tight rope walk for President Trump at the moment as he navigates the waters of US politics and economic recovery.

On the release front, the US economic calendar sees the release of ISM Manufacturing PMI/prices and employment readings while the Canadian calendar sees the release of RBC manufacturing PMI. 

Trading Perspective: While risk sentiment in the global market remains risk on, traders in the US market display risk-averse tone to a certain extent as the mood is affected by protests against racial discrimination and escalating tensions between China and the USA. US futures trading in the international market was down owing to the same reasons mentioned above, but sharp losses were prevented due to prevalent risk-on mood in the rest of global markets. 

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