Markets mixed as US-China trade tension rises with Trump warning

Markets were mixed on Tuesday.

The S&P 500 fell 0.3 percent and the STOXX Europe 600 plunged 1.5 percent.

However, earlier in Asia, both the Nikkei 225 and the Shanghai Composite rose 0.4 percent.

Investors became concerned after US President Donald Trump warned China that if no trade agreement is reached before the US presidential elections and he is re-elected next year, the terms of an agreement would be much tougher than what is currently being discussed.

Meanwhile, though, Goldman Sachs has raised its year-end target for the S&P 500 to 3,100 from 3,000.

“The dovish Fed pivot has driven the equity market rally in 2019, and we expect low interest rates will continue to support above-average valuations going forward,” wrote David Kostin, the bank’s chief US equity analyst.

Kostin did acknowledge that policy uncertainty, arising, for example, from the US-China trade war, is a risk to stocks.

Indeed, Morgan Stanley chief economist, Chetan Ahya said that “easing won’t suffice to power a strong recovery”. Rather, “the key to reviving corporate confidence and growth lies in addressing the fundamental economic headwind of the day ... trade tensions today”.

Stocks mixed, sterling falls on prospect of no-deal Brexit

Markets were mixed on Monday.

The S&P 500 slipped 0.2 percent and the Nikkei 225 fell 0.2 percent but the STOXX Europe 600 was flat.

As US stocks pulled back from record highs, Michael Wilson, chief equity strategist at Morgan Stanley, wrote in a note to clients: “We think this latest surge will fail again, as we don’t expect a Fed cut to rekindle growth the way market participants may be hoping, and now pricing.”

In Europe, sterling fell over 1 percent, touching a 28-month low.

Sterling fell after Michael Gove, a member of newly-elected UK prime minister Boris Johnson's cabinet who is in charge of planning for a no-deal Brexit, wrote in the Sunday Times: “No deal is now a very real prospect.”

Narrow US stock market rally at risk from volatility spike

The S&P 500 rose 1.7 percent last week, ending at a record high.

Sven Henrich, founder and lead market strategist at NorthmanTrader, noted that the stock market's rally to all-time highs has been accompanied by falling volatility as measured by the CBOE Volatility Index or VIX.

“The VIX follows some very specific patterns that show compression,” he told CNBC on Friday, pointing to a series of lower highs and lower lows in the VIX.

Henrich said that when volatility “compresses too much, then we see these spikes” in the VIX.

Henrich added that the Federal Reserve's monetary policy decision this week, widely expected to be a rate cut, could be the trigger for such a spike.

Henrich also said that “while we see the Nasdaq making new highs, there’s no visible expansion in new highs versus new lows in these indicators”, indicating that “participation [is] waning in favor of a few individual stocks on the Nasdaq”.

Brendan Coffey at Forbes made a similar point for the market as a whole.

Coffey noted that the Russell 2000 has started lagging the S&P 500 “by an unusually wide amount”.

He said that it is “still a bull market, but there are signs it may be going to pasture”.

US stocks hit record highs as economy grows better than expected

Markets mostly rose on Friday.

The S&P 500 rose 0.7 percent to a record high and the STOXX Europe 600 rose 0.3 percent.

However, Asian markets were mixed, with the Shanghai Composite rising 0.2 percent but the Nikkei 225 falling 0.5 percent.

A report on Friday showed that the US economy grew at a 2.1 percent rate in the second quarter, better than economists expected.

US corporate results announced on Friday were also generally better than expected. Alphabet in particular jumped 9.6 percent after announcing a massive buyback programme.

Indeed, Blackstone chief investment strategist Joseph Zidle told CNBC that the Federal Reserve may not cut rates as much as many are expecting.

“Inflation is not nearly as weak as the market expects,” he said. “Economic growth is slowing, but I think we’re going to avoid a recession for a long time.”

Zidle added that that could lead to increased volatility due to a “rerating of risk assets”.

In contrast, Richard Bernstein Advisors portfolio strategist Dan Suzuki told CNBC that correction risks are rising because growth is slowing.

“When the Fed has historically cut rates, unless you had some kind of combined effort from the fiscal stimulus side of things, it’s been generally more of a bearish sign than it has a bullish sign,” said Suzuki.

US and European stocks fall despite ECB expecting interest rates “at their present or lower levels”

Markets were mixed on Thursday.

The S&P 500 fell 0.5 percent, the STOXX Europe 600 fell 0.6 percent but the Shanghai Composite rose 0.5 percent.

The European Central Bank prepared markets for more easing measures on Thursday, saying that it expects its key interest rates to remain “at their present or lower levels” at least through the first half of 2020.

ECB President Mario Draghi said at a press conference on Thursday that “a significant degree of monetary stimulus continues to be necessary to ensure that financial conditions remain very favorable and support the euro area expansion.”

However, not everyone was impressed by the announcement.

“No meat on the bone on what the package/stimuli might entail,” wrote Piet Christiansen, senior ECB/euro-area analyst at Danske Bank, in a tweet.

Meanwhile, some positive economic data from the US also failed to boost stocks. Durable goods orders rose 2 percent last month while new applications for jobless benefits fell to 206,000 during the week ended 20 July.

“P/E expansion is responsible for almost all the price appreciation this year, and stocks are starting to look a little pricey. Not yet to scary levels, but something to watch,” wrote Ed Keon, chief investment strategist at QMA, a quantitative equity arm of PGIM.

Markets rise amid “mixed technical backdrop”

Markets rose on Wednesday.

The S&P 500 rose 0.5 percent to a record high, the STOXX Europe 600 rose less than 0.1 percent and the Shanghai Composite rose 0.8 percent.

“The mixed earnings picture and comments on the economy that we have heard from companies so far now coincides with a somewhat mixed technical backdrop for the market in the near-term,” said Dan Russo, chief market strategist at Chaikin Analytics.

Indeed, MarketWatch reported that measures of market breadth have deteriorated in recent weeks.

And corporate earnings could remain weaker than currently expected.

“Anything less than a rapid rebound in the global economy will probably result in weaker earnings than the [current forecasts],” said Oliver Jones, economist at Capital Economics, “which in turn would probably cause global equities to struggle”.

Markets rise on trade hopes and earnings reports, UK faces hard Brexit

Markets rose on Tuesday.

The S&P 500 rose 0.7 percent, the STOXX Europe 600 rose 1.0 percent and the Nikkei 225 rose 1.0 percent.

Stocks were boosted by news that face-to-face talks between US and Chinese trade negotiators would begin next week as well as stronger-than-expected earnings reports.

“Any incremental news on trade will be received well,” said Doug Foreman, chief investment officer at Kayne Anderson Rudnick.

Meanwhile, more than 18 percent of S&P 500 companies have posted quarterly results this earnings season. According to FactSet data, more than 78 percent of them have reported better-than-expected earnings.

In the UK, Boris Johnson was elected to lead the Conservative Party and become the next prime minister. Johnson has insisted that the UK must leave the EU by the 31 October deadline “come what may”, creating concerns that it would do so without a deal.

US economy at risk of recession, Fed easing could make it worse

Democratic presidential candidate Elizabeth Warren sees a possible US recession.

I warned about an economic crash years before the 2008 crisis, but the people in power wouldn’t listen...

When I look at the economy today, I see a lot to worry about again. I see a manufacturing sector in recession. I see a precarious economy that is built on debt — both household debt and corporate debt — and that is vulnerable to shocks. And I see a number of serious shocks on the horizon that could cause our economy’s shaky foundation to crumble.

While Warren is a politician and may have a political agenda in warning about a recession, others have also sounded such a warning.

Morgan Stanley's chief US economist Ellen Zentner said in a report that “the path to the bear case of a U.S. recession is still narrow, but not unrealistic”, with a probability of about 20 percent.

However, she added that if trade tensions escalate further, growth could be cut from a projected 2.2 percent in 2019 to a negative 0.1 percent in 2020.

And while the Federal Reserve is expected to cut interest rates, Zentner warned that Fed policy easing could be negated by increasing pressure from tariffs that could pull both the US and global economy into recession.

Indeed, Steve Ricchiuto, the US chief economist of Mizuho Americas, said that Fed easing could exacerbate any coming economic slowdown by keeping interest rates excessively low.

A rate cut “will incite undesired risk taking by borrowers and deepen the next recession, which will unnecessarily increase the cost to society,” Ricchiuto told clients in a recent research note.

US economic data suggesting recession risk

The S&P 500 fell 1.2 percent last week as investors continued to watch for clues relating to a Federal Reserve interest rate cut at its monetary policy meeting later this month while also monitoring corporate earnings reports.

In the meantime, one of the more prominent bears is warning of a possible US economic recession.

Gluskin Sheff’s David Rosenberg told CNBC last Thursday that economic data are “certainly suggesting of a significant growth turndown right now in the U.S. economy”.

David Haggith at The Great Recession Blog lists several indicators suggesting that the US economy may be headed for a recession.

US stocks fall as NY Fed clarifies rate stance

Markets were mixed on Friday.

The S&P 500 fell 0.6 percent but the STOXX Europe 600 rose 0.1 percent and the Nikkei 225 surged 2.0 percent.

US stocks lost momentum after investors realised that the Federal Reserve may not be as prepared for a big rate cut as previously expected. A spokeman for the New York Federal Reserve said that President John Williams’ assertion that policymakers need to “act quickly” as economic growth slows was drawing from research, not hinting at what may happen at this month’s Federal Open Market Committee meeting.

Still, some continue to expect a big cut.

“They really need to convince guys like me and the people that control a lot of the money on Wall Street that they are truly serious about reinflating the economy,” said Brent Schutte, chief investment strategist for Northwestern Mutual Wealth Management.

US stocks rise but US-China trade war still poses a risk

Markets were mixed on Thursday.

The S&P 500 rose 0.4 percent but the STOXX Europe 600 fell 0.2 percent and the Nikkei 225 plunged 2.0 percent.

In the US, stocks were supported by a comment by New York Federal Reserve President John Williams that the central bank needed to “act quickly” when the economy was slowing and rates were low.

Japanese stocks were dragged down by a report showing that Japan's exports fell 6.7 percent in June from a year earlier.

Asian stocks in general were also weighed down by trade issues.

“Donald Trump’s renewed trade threats this week undermine relief from the resumption of US-China trade talks agreed to by Presidents Trump and Xi at June’s G20 meeting,” Vishnu Varathan, head of economics and strategy at Mizuho Bank, wrote in a note.

And US stocks could still get hit by the trade war, according to CFRA Research investment strategist Lindsey Bell.

Bell noted that “we haven’t gotten indication that they’re making major progress yet”.

Bell said that there are risks to corporate earnings “primarily in the fourth quarter of this year” and that corporations “are going to bring guidance down as they release second-quarter earnings”.

Markets fall, US-China trade talks still have a “long way to go”

Markets fell on Wednesday.

The S&P 500 fell 0.7 percent, the STOXX Europe 600 fell 0.4 percent and the Nikkei 225 fell 0.3 percent.

Markets may have been weighed down by comments from US President Donald Trump on Tuesday that the US and China still have a “long way to go” on trade and that the US could still slap additional tariffs on Chinese goods.

Meanwhile, US economic data released on Wednesday were mixed. While the Federal Reserve's beige book survey showed that businesses were generally positive, another report showed that new building permits fell 6.1 percent in June while housing starts fell 0.9 percent.

Some analysts remain homeful on the market.

“There are good reasons to believe that despite the downbeat expectations, earnings season could come in better than expected—which would be good for markets,” Brad McMillan, chief investment officer at Commonwealth Financial Network said in a note.

Markets mixed, “pain trade remains up”

Markets were mixed on Tuesday.

The S&P 500 fell 0.3 percent and the Nikkei 225 fell 0.7 percent but the STOXX Europe 600 rose 0.3 percent.

“The bullish move that some equity markets enjoyed thanks to the slight improvement in U.S.-China trade talks, and the chatter about the Federal Reserve lowering rates, has run out of steam, and some traders are taking a breather,” wrote David Madden, market analyst at CMC Markets UK.

However, the latest Bank of America Merrill Lynch fund managers survey suggests that there is room for further gains as cash allocations remain well ahead of historical averages.

“The dovish Fed and trade truce have caused investors to reduce cash and add risk, but their expectations of an earnings recession and debt deflation still dominate sentiment,” Michael Hartnett, BofAML’s chief investment strategist, said in a statement. “The pain trade for the summer remains up in stocks and yields.”

JP Morgan sees “upside case for equities”

Markets rose on Monday, with US indices eking out gains to close at record highs.

A report on Monday showed that China’s GDP growth slowed in the second quarter to 6.2 percent, the lowest since 1992, but markets reacted little to it.

“The GDP figures matched market expectations to the dot,” wrote Carl Weinberg, chief international economist at High Frequency Economics.

Instead, investors may be mostly focusing on potential rate cuts by central banks.

In a note on Monday, JP Morgan's chief US equity strategist Dubravko Lakos-Bujas wrote that they are “raising our S&P 500 12-month price target to 3,200 as our upside case for equities is increasingly in play with Fed and Trump easing on policy while investor positioning/sentiment remains low”.

A stock market melt-up, however, is unlikely, according to Mark Haefele, global chief investment officer at UBS Global Wealth Management.

“While we expect modest upside for stocks in our base case, valuations and corporate fundamentals don’t point to a ‘melt-up’. Earnings growth remains subdued and multiples have only modest scope for further expansion,” he wrote.

S&P 500 at record high at risk of rate-cut disappointment

The S&P 500 closed at an all-time high of 3,013.75 on Friday.

Stocks were driven by expectations for an interest rate cut by the Federal Reserve at the end of this month after Fed Chairman Jerome Powell's congressional testimony last week.

In his testimony Powell said that the Fed is prepared to “act as appropriate to sustain the expansion”.

Indeed, some investors think a 50 basis-point cut is possible, with the Fed funds futures market placing a 23.5 percent chance of such a move as of Friday.

“Historically the Fed has wanted shock and awe when they ease,” said Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management.

In contrast, some question the need for a rate cut at all.

“Unemployment is below the Fed’s maximum employment target, prices are as stable as they have ever been in the history of the country, and the yield on a 30-year Treasury yield is 50 basis points above its all-time low,” noted Michael O’Rourke, chief market strategist at JonesTrading.

“I’m having a hard time figuring out why they’re planning to cut,” said Mark Stoeckle, CEO and senior portfolio manager at Adams Funds.

Indeed, Michael Schumacher, global head of rate strategy and managing director at Wells Fargo Securities, suggested that the Fed is “going to disappoint the market” by not cutting as much as it already anticipates.

Anthony Grisanti, founder and president of GRZ Energy, said: “I don’t think he’s going to cut rates at the end of the month.”

S&P 500 closes at new high, driven by “Fed put”

Markets mostly rose on Friday.

The S&P 500 rose 0.5 percent to close above 3,000 for the first time ever. The Nikkei 225 rose 0.2 percent and the STOXX Europe 600 rose marginally.

Rate cuts continued to be a focus of attention on Friday, with Chicago Federal Reserve president Charles Evans saying that “a couple of rate cuts” is needed “in order to get the inflation outlook up”.

Patti Domm at CNBC noted that the rate-cut talks have encouraged the view that there is a “Fed put” on the stock market.

The Fed “is the factor,” she quoted Michael Farr of Farr, Miller & Washington as saying.

“I’ve now come to the conclusion the Fed is going to to cut rates not because of the weakness in the U.S. economy but because they want to make the coordinated effort to forestall a global recession,” said Sam Stovall, chief investment strategist at CFRA.

Indeed, Domm noted that the “Fed’s anticipated rate cut is unusual in that it comes at a time of very low unemployment and an economy that is growing at trend of about 2%” and “with core CPI rising at a 2.1% pace year over year, one of the highest readings during the recovery”.

S&P 500 hits new high as Powell gives strong hint of rate cut

Markets were mixed on Thursday.

The S&P 500 rose 0.2 percent to an all-time high while the Nikkei 225 rose 0.5 percent. However, the STOXX Europe 600 fell 0.1 percent.

Hopes for a rate cut by the Federal Reserve continued to drive market gains after Fed Chairman Jerome Powell told the Senate Banking Committee on Thursday that a preemptive rate cut could be necessary even if economic and job growth remain strong.

“Markets were in buoyant mood on Thursday as Fed Chairman Jerome Powell gave his strongest indication yet that the Federal Reserve will slash interest rates at the July 30-31 meeting,” said Raffi Boyadjian, senior investment analyst at XM.

Rajeev De Mello, chief investment officer at Bank of Singapore, said that “it’s much clearer that we have a rate cut” at the end of this month, “probably followed by one or more rate cuts” in the next few months.

However, the US 10-year Treasury yield rose 5.8 basis points after an afternoon Treasury bond sale saw weaker-than-expected demand.

US stocks rise as July rate cut seen as “all but certain”

Markets were mixed on Wednesday.

In the US, the Nasdaq Composite rose 0.7 percent to a record high while the S&P 500 rose 0.5 percent, touching an intraday record high in the process.

However, elsewhere, the STOXX Europe 600 fell 0.2 percent and the Shanghai Composite fell 0.4 percent.

US stocks rose after Federal Reserve Jerome Powell indicated that the central bank is considering interest rate cuts.

In his testimony to the US Congress, Powell said that “economic momentum appears to have slowed in some major foreign economies, and that weakness could affect the U.S. economy”. He added that the Fed is prepared to “act as appropriate to sustain the expansion”.

“A rate cut in July is now all but certain,” said Aberdeen Standard Investments senior global economist James McCann.

Markets mixed, US economy showing “broad signs of recovery”

Markets were mixed on Tuesday.

The S&P 500 rose 0.1 percent but the STOXX Europe 600 fell 0.5 percent.

Earlier in Asia, the Nikkei 225 rose 0.1 percent but the Shanghai Composite fell 0.2 percent.

Many investors are probably waiting for the two-day testimony before Congress by Federal Reserve Chairman Jerome Powell due to start Wednesday to gain more insights into Fed monetary policy after a strong jobs report last week lowered expectations for a rate cut.

Indeed, forecasters at UBS think that the US economy is bouncing back.

“We are growing again. Across a lot of indicators, there are broad signs of recovery since the first quarter,” said UBS economist Sam Coffin.

Markets fall on lower rate-cut expectations, Japan-S Korea dispute

Markets fell on Monday.

The S&P 500 fell 0.7 percent while the STOXX Europe 600 dipped slightly.

Earlier in Asia, though, stocks were sharply lower. The Shanghai Composite plunged 2.6 percent and the KOSPI tumbled 2.2 percent. The Nikkei 225 fell 1.0 percent.

Markets mostly fell on lowered expectations for interest rate cuts but in Asia, a political dispute between Japan and South Korea over wartime labour added to concerns.

Japan imposed restriction on exports to the latter after recent South Korean court rulings awarded damages to Koreans claiming to have been forced to work for Japanese firms during World War II. Koreans are calling for a boycott of Japanese goods in retaliation.

Meanwhile, BlackRock has downgraded its global growth outlook for the second half of the year but still sees a good environment for US stocks.

Jean Boivin, head of the BlackRock Investment Institute, wrote that central banks are creating a “benign environment” and does not see a risk of recession for this year. “Based on that, the next few months do look pretty constructive for markets,” he said.

In contrast, Morgan Stanley has downgraded global equities despite expecting a rate cut because it believes economic weakness matters more for stocks.

Fed rate cut may not happen but stocks may rally anyway

The S&P 500 rose 1.7 percent last week despite a 0.2 percent decline on Friday after hitting a record high on the previous trading session.

The S&P 500 fell on Friday after the US employment report showed that the economy gained 224,000 new jobs in June. That report lowered expectations for a 50-basis-point rate cut by the Federal Reserve in July although a 25-basis-point cut is still expected.

“A rate cut in July is still all but inevitable,” wrote Luke Bartholomew, investment strategist at Aberdeen Standard Investments.

However, a MarketWatch report suggested that that may not be accurate.

The report noted that “at the June Fed meeting the median forecast by Fed officials was for no rate cuts in 2019, and some voting members of the Fed’s interest-rate-setting committee, such as the bank’s vice chairman for supervision, Randy Quarles, have publicly taken aim at any justification for a rate cut”.

“The level of certainty [that the Fed will cut in July] is not justified,” John Vail, chief global strategist at Nikko Asset Management, was quoted as saying.

Still, PNC Financial co-chief investment strategist Jeffrey Mills thinks that a rate cut may not be necessary to sustain the stock market rally.

“You have about 50% of individual stocks in the S&P 500 now trading above their one month highs,” Mills said, suggesting that market technicals are in good shape.

Markets dip after strong US jobs report

Markets were mixed on Friday.

The S&P 500 fell 0.2 percent and the STOXX Europe 600 fell 0.7 percent.

Earlier in the day, though, Asian stocks rose. The Nikkei 225 and the Shanghai Composite both rose 0.2 percent.

Investor sentiment turned down after a report showing that the US economy created 224,000 new jobs in June. That lowered expectations for a 50-basis-point rate cut by the Federal Reserve in July although a 25-basis-point cut is still expected.

“I don’t think it is large enough to steer them away from an interest-rate cut,” said Carl Tannenbaum, chief economist at Northern Trust.

“I think we’ll get 25 basis points. Anything more is hallucinatory,” said Brian Bethune, chief economist for Alpha Economic Foresights.

Italian stocks jump after reprieve from European Commission

Markets were mostly higher on Thursday.

The STOXX Europe 600 rose 0.1 percent and the Nikkei 225 rose 0.3 percent. The US stock market was closed for a holiday.

Italy's MIB rose 1.0 percent after the European Commission dropped its threat of disciplinary action against Italy on Wednesday after the latter took actions to curb its growing debt.

Investors are likely to turn their attention to the US nonfarm payrolls report next. The report is set to be released on Friday.

“If job growth falls short of expectations, the market could immediately move to pricing in a July interest rate cut,” said Kathy Lien, managing director of foreign exchange strategy at BK Asset Management.

Financial assets become “pricey” amid low interest rates

Markets were mixed on Wednesday.

The S&P 500 rose 0.8 percent to a record high while the STOXX Europe 600 rose 0.9 percent. However, the Nikkei 225 fell 0.5 percent.

Market sentiment may have been boosted by the nomination of current International Monetary Fund Managing Director Christine Lagarde as the replacement for Mario Draghi as the head of the European Central Bank. Lagarde is widely seen as inclined towards easier monetary policy.

Government bond yields fell, with the German 10-year bund yield falling to a fresh record low of minus 0.386 percent.

Indeed, Mark DeCambre at MarketWatch noted that stocks, bonds and gold have all become “pricey”.

“I think one of the unintended, yet in hindsight predictable, outcomes of ZIRP [zero interest-rate policy] was to force investors into looking for returns anywhere they can find it,” Michael Antonelli, a market strategist at Baird, was quoted as saying.

And yet, DeCambre also noted that easy monetary policy may be becoming less effective.

DeCambre cited a report by Torsten Slok, chief economist at Deutsche Bank Securities, titled “QE no longer works”.

“Given the current level of inflation expectations and the current level of rates, doing QE again is not going to create the same surprise effects,” wrote Slok.

DeCambre also cited a paper that suggested that “a persistently easy-money environment provides little leeway for stimulus if inflation proves preternaturally sluggish, as it has thus far”.

Stocks rise, oil plunges amid “increasing demand concerns”

Markets rose on Tuesday.

The S&P 500 rose 0.3 percent to a record high, the STOXX Europe 600 rose 0.4 percent and the Nikkei 225 rose 0.1 percent.

However, government bond yields fell. The US 10-year Treasury yield closed at 1.977 percent, its lowest in more than two years, while the 10-year German Bund yield hit an all-time low of -0.363 percent on Tuesday morning.

Oil prices plunged. West Texas Intermediate crude fell 4.8 percent and Brent fell 4.1 percent.

Tyler Richey, co-editor of Sevens Report Research, said that oil fell “because of increasing demand concerns”, noting that the recent manufacturing PMI data were “universally bad when factoring details in”.

Lukman Otunuga, research analyst a brokerage FXTM, said that the truce on the US-China trade war agreed to at the G-20 meeting over the weekend may not help much “given how the implemented tariffs are denting global growth and still remain unresolved—nothing much has changed”.

Markets rise on US-China trade war truce

Markets rose on Monday.

The S&P 500 rose 0.8 percent, the STOXX Euurope 600 rose 0.8 percent and the Nikkei 225 surged 2.1 percent.

Markets rose after US President Donald Trump and Chinese President Xi Jinping agreed to refrain from escalating their trade dispute in discussions on the sidelines of a meeting of the G20 in Japan.

Despite the truce in the trade war, some analysts remain cautious.

“The biggest question on everyone’s mind is will any armistice stick or will history repeat, and trade war gridlock set in?” asked Stephen Innes, managing partner at Vanguard Markets.

James Cox, managing partner at Harris Financial Group, said that “the reality of the situation is that the potential damage of the trade war is already done”.

Tom Essaye, president of the Sevens Report, wrote on Monday: “Every manufacturing PMI missed expectations this morning, including those from China, Germany, the EU and Great Britain. All of those PMIs are now below 50, signaling widespread contraction in manufacturing activity.”

In the US, the Institute for Supply Management’s manufacturing index fell to 51.7 in June from 52.1 in May but the IHS-Markit purchasing-manager’s index rose to 50.6 in June from 50.1 in May.

Markets jump in June but hopes from a Fed rate cut “is a mistake”

The S&P 500 rose 6.9 percent in June, its best June gain since 1955. It gained 17.4 percent over the first half of the year.

The rise in the S&P 500 means that it is now trading at a price-to-earnings ratio of 21.83, compared with a 10-year average of 17.87.

It is not just stocks that has been rallying. So are bonds and gold.

Mark DeCambre at MarketWatch noted that the US 10-year Treasury yield finished last week at 2 percent, about half-a-percentage point below the 10-year average of 2.482 percent, while the price of gold finished at US$1,413.70, not far from its highest level in six years.

DeCambre also noted that Bank of America Merrill Lynch analysts led by Michael Hartnett, the chief investment strategist, say that investors have never been so negative on a market that is rallying so briskly while Lindsey Bell, investment strategist at CFRA, said that “things can quickly change on a dime”.

Indeed, while markets have been rising on the perception that the Federal Reserve will ease monetary policy, John Hussman reminded us that “with the exception of 1967 and 1996, every initial easing of monetary policy by the Federal Reserve has been associated with an oncoming or ongoing recession”.

“Blind faith that rate cuts are always positive for the stock market is a mistake,” wrote Hussman. “This assumption is likely to be the hook that keeps investors holding on through a 60-65% market collapse over the completion of this market cycle.”