U.S. markets settled mixed following renewed tariff and trade threats between the U.S. and China.
China accused the U.S. of attempting to blackmail on trade, while Trump advisors are urging a steep 25% tariff, up from 10%, on another $200 billion in Chinese goods.
The rationale of the proposed new tariffs is to offset the depreciation of the yuan since the process started.
The latest Fed news also weighed on sentiment with slight volatility ahead of the minutes.
The Nasdaq rose 0.5% after trading to a first half high of 7,732.
The index held the 7,700 level into the close and its 50-day moving average for a 2nd-straight session.
The Russell 2000 was down 0.1% following the backtest to 1,657. Upper support at 1,660-1,650 held with the close back below 50-day moving average being a slight concern.
The S&P 500 slipped 0.1% after failing lower resistance at 2,825-2,830 on the session high.
Support at 2,800 held for the 12th-straight session on the fade to 2,805 afterwards.
The Dow fell 0.3% after erasing a morning gain of 73 points to 24,488. The close below 25,400 keeps risk open to 25,200-25,000.
Technology paced sector strength after rising 0.9%. Real Estate added 0.7%.
Energy and Industrials tumbled 1.4% to lead sector laggards while Materials stumbled 1%.
Global Economy – European markets were lower across the board following fresh tariff talk.
UK’s FTSE 100 sank 1.2% while the Stoxx 600 Europe and Germany’s DAX 30 fell 0.5%.
France’s CAC 40 dipped 0.2% and the Belgium20 slipped 0.1%.
The German July Markit/BME manufacturing PMI was revised downward to 56.9 from the previously reported 57.3.
The UK July Markit manufacturing PMI was down 0.3 to 54, below expectations of 54.2.
Asian markets were mixed following slightly weaker-than-expected economic news from China.
Japan’s Nikkei jumped 0.9% and South Korea’s Kospi rose 0.5%.
China’s Shanghai tumbled 1.8% and Hong Kong’s Hang Seng gave back 0.9%. Australia’s S&P/ASX 200 was off 0.1%.
The China July Caixin flash manufacturing PMI fell 0.2 to 50.8, weaker than expectations for a print 50.9 and the slowest pace of expansion in 8 month.
MBA Mortgage Applications sank 2.6%, with a 3.1% drop in the purchase index and a 1.7% decline in the refinancing index for the week ending July 27th.
The average 30-year fixed mortgage rate rose 7 basis points to 4.84%.
The July ADP Employment Report came in at 219,000, well above expectations of 173,000. Employment in the goods producing sector rose 42,000, manufacturing was up 23,000 and construction increased 17,000.
Jobs in the service sector climbed 177,000, with education/health adding 48,000.
July PMI Manufacturing Index came in at 55.3, slightly below forecasts of 55.5.
July ISM Manufacturing Index checked in at 58.1, missing estimates for a print of 59.5.
Construction Spending for June declined 1.1%, well below forecasts for growth of 0.2%.
However, May’s previously 0.4% gain was revised sharply higher to 1.3%, with April’s prior 0.9% increase boosted to a 1.7% gain, helping offset the June slide.
Residential spending declined 0.5% versus the 1.4% jump in May while Nonresidential spending fell 1.6% from the 1.3% prior gain.
Private spending slipped 0.4% versus 0.9%. Public spending dropped 3.7% after bouncing 2.3%.
Market Sentiment – The FOMC maintained a steady rate after keeping the Federal Funds Rate unchanged at 1.75%-2%.
There were not many changes, though there was a more upbeat tone.
The minutes from June indicated that the labor market has continued to strengthen and that economic activity has been rising at a strong rate.
The minutes revealed more upbeat language as household spending and business fixed investment have grown strongly, versus the prior language where household spending had picked up with business spending strong.
On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2%.
The Fed said risks to the economic outlook appear roughly balanced and reiterated that the Committee expects further gradual increases in the target range for the federal funds rate.
This keeps a September hike well in play, with another bump likely in December.
Of note, there was no mention of tariffs.
The iShares 20+ Year Treasury Bond ETF (TLT) opened in negative territory at $118.29 and quickly tested its session low of $118.07 shortly afterwards.
Early June and upper support at $118-$117.75 held with a close below $117.50 being a continued bearish development. Lowered resistance is at $118.75-$119.
RSI is signaling slightly oversold levels with April and May support at 35. A move below this level could lead to 30 and February lows.
Resistance is at 40.
Market Analysis – The Russell 2000 ETF (IWM) traded to a high of $166.24 shortly after the open with near-term resistance at $166-$166.25 holding.
The fade to $164.49 afterwards held support at $164.50-$164.
We mentioned a longer-term trading range between $166 and $170 had developed throughout July with a move below $166 would likely lead to a continued backtest to $165-$164.
The close back below the 50-day moving average was a slight concern.
Continued closes below $164 would be a more bearish development with risk to $162 and late June lows.
Continued closes above $166 would get the prior trading range in play with a move above $168 being a more bullish signal.
RSI is giving a neutral reading with resistance at 50. Near-term support is at 45-40 with a move below the latter confirming additional weakness.
The Consumer Staples Select Spiders (XLP) has traded in a tight range over the past 5 sessions following the close back above the 200-day moving average.
Upper support at $53-$52.75 held on the pullback to $53.03. A close back below the latter would be a slightly bearish signal.
Near-term resistance is at $53.75-$54 with continued closes above the latter signaling additional momentum.
RSI is in a slight downtrend after closing below support at 60.
There is risk to 55-50 on further weakness with the latter representing late May and early June resistance.
All the best,
Roger Scott.