Market Update

Entering the second half of the year, global equity markets maintained their positive momentum following a constructive meeting between US President Trump and Chinese President Xi at the G20 summit on June 29-30. Both countries agreed to resume trade talks, with the US cancelling further tariffs on Chinese imports and easing restrictions on Huawei, while China pledged to purchase US agricultural products. While this marked progress, a comprehensive resolution remains distant, and ongoing developments, both positive and negative, are likely to sway equity markets in the foreseeable future.
The US heightened tensions with the EU by adding an additional $4 billion worth of products to the $21 billion already threatened in April, all in response to EU aircraft subsidies to Airbus, which the US claims cost its economy $11 billion annually. While the World Trade Organization (WTO) has ruled that EU subsidies violate international trade rules, the EU has its own pending case against the US regarding subsidies provided to Boeing. Although the WTO is expected to decide on the matter soon, the EU had already released a retaliatory $12 billion list in April, strategically targeting farm products in areas constituting President Trump's political base.
Trump, mindful of the impact of his policies on equity markets, faces the challenge of timing these agreements strategically. A swift resolution might be forgotten by the time of the November 2020 elections, while a protracted negotiation period could become a political hurdle, allowing his opponents to prolong the discussions until his potential successor takes office.
In Europe, markets welcomed the election of Christine Lagarde as the next ECB President, succeeding Mario Draghi in October. As the current chair of the International Monetary Fund, Lagarde advocates for stimulating economies through monetary policy, fiscal expansion, or structural reforms. Her appointment alleviated concerns about a potential shift in the ECB's dovish stance. It also ruled out Jens Weidman, the German Bundesbank chief, who opposed many of Draghi's supportive economic policies.
Additionally, US nonfarm payroll data released on Friday revealed the creation of 224,000 new jobs in June, surpassing the expected 160,000. This eased pressure on the Fed, leading us to anticipate a 0.25% interest rate cut later this month rather than a 0.5% reduction.
Looking ahead, next week will bring the release of minutes from the June meetings of the Fed and ECB. The Bank of England will publish its semi-annual Financial Stability Report, and Fed Chairman Jerome Powell will present the Monetary Policy Report to a Senate panel.