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Delay in US auto tariff decision boosts stocks and oil

16:42 15 May 2019

Summary:

  • Risk assets surge as Trump delays tariff decision

  • Dax jumps 200 points in a matter of minutes

  • Oil also rallies despite large inventory build

  • GBPUSD bounces from 3-month low

  • US retail sales miss expectations in April

 

There's been a sharp move higher in stock indices in the past hour after Bloomberg reported that US president Trump will delay a decision on automobile tariffs for up to 6 months. The most marked reaction can be seen in the DE30 (+0.6%) which is now higher on the day after jumping almost 200 points in a matter of minutes when the news broke. Elsewhere there's been a swift drop in the USD and Gold in response to the news.

 

The news is in fact more symbolic than anything and suggests that the recent increases on China are not part of a wider plan to increase tariffs on other countries and as such can be seen as positive for the global economy - and also positive for Oil demand. Turning attention to the inventory data and the weekly headline showed a large build of 5.4M vs -1.2M expected. The prior was -4.0M. While the build is large it is smaller than the 8.6M seen in last night’s API reading while the subcomponents of the report were actually more positive for the market, with the drop in production the best news on the supply side for oil bulls.

 

The pound had earlier fallen to its lowest level in 3 months against the US dollar, tumbling below the $1.29 handle. The market since recovered however, on a pullback in the greenback after the Trump news saw stocks soar and in doing so presumably reduced the safe haven flows into USD. Another reason for the USD pullback could be falling expectations for rate cuts if the trade tensions don’t escalate as much as some fear.

 

Also for the USD the first look at the US hard data in the second quarter does not bode well for economic growth there. Headline retail sales in April decreased 0.2% MoM, missing the median estimate of a 0.2% MoM increase. On top of that, we were also offered a notable miss in case of core sales (ex. auto) which rose only 0.1% MoM (a 0.7% MoM increase had been expected). It is also worth mentioning a flat reading for sales in the control group, a series taken into GDP calculations. The data for March was revised slightly up. The weaker retail sales report was offset to some extent by the excellent print of the Empire manufacturing index coming in at 17.8, up from 10.1, above expectations of 8 points.

 

This content has been created by X-Trade Brokers Dom Maklerski S.A. This service is provided by X-Trade Brokers Dom Maklerski S.A. (X-Trade Brokers Brokerage House joint-stock company), with its registered office in Warsaw, at Ogrodowa 58, 00-876 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. X-Trade Brokers Dom Maklerski S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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