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Bob Mason
S&P 500

It’s the start of a new month and the markets find more reason to move northwards. All of this is in spite of Trump’s so-called optical moves last Friday.

We’ve got the Aussie Dollar up at $0.67 levels, off the back of a 1% surge this morning.

Economic data from China showed that the manufacturing sector expanded in May. That was about it on the positive news front, however.

While the numbers were better, May PMIs from the Eurozone continued to report a marked contraction. China also saw demand from the West vanish as a result of the lockdown.

One does wonder whether May’s uptick in Europe was as a result of the April lockdown and immediate demand rather than a longer-term trend.

Later today, we will see whether the U.S manufacturing sector follows a similar path.

Last week, May’s Chicago PMI suggested otherwise. Throw in an official unemployment rate that may well exceed 20%, it’s going to take some time for any sort of recovery.

China

If the U.S President was under the impression that China would accept a slap on the wrist, he was sorely mistaken.

News of Beijing calling on firms to cease the imports of U.S soybeans and pork is a breach of that so fragile phase 1 trade agreement.

On Friday, Trump even declared that the U.S will leave the agreement in place, an olive branch to ease tensions.

Beijing’s move this morning delivered two messages for the U.S President…

Firstly, no thank you, and secondly, good luck in the November presidential election.

Trump has certainly been struggling of late. While he can’t be blamed for the global pandemic, he must take some blame for the spread across the U.S. That laissez-faire attitude early on contributed to the millions upon millions of Americans out of work.

We then have the beginnings of another trade war going into the summer… No one wants it, least of all Trump who could be looking at the final few months of his presidency.

There’s no legacy to talk of just yet and America has certainly not been made great again.

In fact, when you see the news from the weekend and the start of the week, racial tensions have risen dramatically. Trump has not helped with the anger with his response not too different than during other protests and riots under his watch.

Just going back to his inaugural speech, there had been a desire to unite the nation. Tweeting “the only good Democrat is a dead Democrat” shows absolutely no intent to unite a nation. Quite the opposite in fact.

Optimism Reigns Supreme

Investors must be asking the big question. When will this rally hit a brick wall and then reverse with venom?

Civil unrest coupled with the worst labor market conditions and economic meltdown since the Great Depression is a bad combination.

A continued spread of the coronavirus across the U.S and the scars that it leaves behind are also a concern.

Today’s moves across the European majors point to a buoyant, almost jubilant, market.

Clearly there is a disconnect when considering the pace at which the global economy is likely to recover.

Whether it’s the FED propping up the market or investors believing that the correction has come and passed is neither here nor there.

At some point, even the eternal optimist will need to pause or so you would think.

If the pessimists jump on the bandwagon, there could well be a 2nd wave. Not one of the pandemic but in the equity markets. And these are rallies that we have become accustomed to in Trump’s presidency.

Will that be his silver bullet to fend off a Democratic revival?

China is doing its best to find Trump’s Achilles Heel and that may be just the reason why the U.S President has invited Putin to the next G7…

Gamesmanship indeed. The last thing Trump needs is a China – Russia alliance. Such an eventuality would have to be lights out for the real estate tycoon come politician.

If the Dollar is the barometer, then Trump’s wish for a weaker Dollar and record-high equity markets may be all that he gets. The average American voter is not going to have much invested with the lack of work they face…

At the time of writing, the EUR was up by 0.12% to $1.11141. Today’s gains may be minor but that optimism over an economic recovery could become an issue…

The last thing that European manufacturers need is a stronger EUR amidst the economic chaos.

Currency wars, trade wars, and tariffs. Are we heading that way once more?

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