Delay in US auto tariff decision boosts stocks and oil

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.