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Trump sours Apple-led rebound

Summary

Market reaction to the White House’s latest tariff threat shows sentiment remains vulnerable to worsening trade conditions, even with resounding earnings in the spotlight.

Apple was little help

Reports that the White House would propose new, higher duties on $200bn in Chinese imports were enough to reverse an improvement in cross-asset sentiment. Major indices briefly pointed higher after Apple reported strong quarterly earnings, driven by higher average selling prices and robust demand, chiefly in China. But back sliding demonstrates investors have yet to establish a playbook to deal with the U.S. administration’s approach. Generally, then, stock market advances are likely to continue being challenged, even with U.S. earnings on course for one of their strongest quarters in a decade. The effect of Apple’s beat is currently limited to futures contracts on the technology focused Nasdaq market. Dow and S&P have mostly been weaker ahead of Wall Street’s open, in step with Europe.

FTSE faces August lag

The FTSE 100 also stands out on the downside. Its idiosyncratic mix of oil and minerals isn’t playing well, and weakness is exacerbated by disappointing results from industrial and consumer bellwethers. These include BAE, which is at the intersection of concerns on global supply chains, with additional weight after warning about specific programme issues. These eclipse a raised dividend, a £1bn order book rise, a maintained outlook and a currency tailwind. The market’s heaviest weights are also anchoring the gauge for contemporaneous reasons.  This suggests just as high a bar of investor approval for HSBC’s earnings next week, with a high chance the report could trigger further selling regardless. Rio Tinto is also close in perception to any U.S.-China fall-out that crimps demand for industrial metals. Having missed profit expectations, its own raised dividend plus an extended buyback barely moderate the stock’s slide. Reports by rivals Glencore, Randgold, Antofagasta and BHP Billiton in coming days and weeks also face a blanket discount. This could maintain the FTSE 100’s lag relative to European counterparts for a further month.

Fed ‘inflation’ tweak possible

Market activity is pausing as the Federal Reserve policy announcement approaches. Whilst the probability of a change to interest rates is as good as zero, there’s an outside chance the FOMC could sufficiently tweak longer-term outlook comments to move the dollar. New inflections are also possible on the near-term inflation outlook. Still, the committee already expects “further gradual increases in the target range for the federal funds rate” to be consistent with sustained expansion of economic activity, strong labour market conditions, and inflation near the “symmetric 2% objective.” The Fed’s favoured inflation gauge, the PCE price index, reached 2% in Q2, so the inflation assessment may warrant slight amendment. But rate rises strongly flagged for September and December will stay strongly flagged. And with no statement nor projections scheduled, policymakers will struggle to introduce even more optimism on the economy. The statement is also unlikely to address trade disputes beyond recent commentary. Chair Jerome Powell has made clear his view of the potential negative effect and, so far, the lack of actual impact.


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