Top 5 Market Drivers for Monday, June 3

Here are the top five highlights from over the weekend that could drive the price action on Monday, June 3.

1. China Claims “The US has backtracked”

China released its much anticipated white paper on Sunday that highlights a widening gap between the two economic powerhouses. In the report, China took a firm stance against the United States on trade.

Although the U.S. media reported that Beijing backed out from basically all negotiating points during talks with the United States several weeks ago, a point that was supported by a tweet from President Trump, the paper disputes that assessment, arguing instead the trade disruptions initiated by the United States, negatively affect the world.

The paper also claimed that the United States is an untrustworthy negotiator and that the Chinese government wants talks that are equal, mutually beneficial and trustworthy.

Traders will use this report to gauge how close the two parties are to restarting trade negotiations after calling off talks two weeks ago.

2. Trump Talks Brexit, Offers U.K. Trade Deal with U.S.

In an interview published Sunday in The Sunday Times ahead of his first official state visit to the U.K., President Trump encouraged the United Kingdom to “walk away” from any negotiations with the European Union if the country is unable to secure a favorable Brexit deal.

“If you don’t get the deal you want, if you don’t get a fair deal, then you walk away,” Trump said. He went on to say he “wouldn’t pay” the $50 billion so-called “divorce bill” to settle the U.K.’s financial obligations with the E.U.:  I’m only saying this from my stand point. I would not pay, that’s a tremendous number,” Trump said.

As far as a U.S.-U.K. trade deal is concerned, Trump said his administration would “work on it very, very quickly.” I’d go all out,” Trump told The Times. “It would be a great advantage for U.K. One of the advantages of Brexit is the fact that you can deal with the number one country by far, we’re number one by far in terms of every metric in terms of an economy.”

3. Morgan Stanley Sees Global Recession ‘in Three Quarters’ if Trade War Escalates

In a research note published by Morgan Stanley, the investment bank said investors are overlooking the threat posed by the U.S.-China trade war, which could send the global economy into recession in less than a year.

“Investors are generally of the view that the trade dispute could drag on for longer, but they appear to be overlooking its potential impact on the global macro outlook,” wrote Chetan Ahya, the investment bank’s chief economist.

Ahya also noted the outcome of the trade war at the moment “is highly uncertain” but warned that if the U.S. follows through with 25% tariffs on the additional Chinese imports, “We could end up in a recession in three quarters.”

Please note, the emphasis is on “escalates”. He’s not predicting a recession at this time.

4. Mexico Open to Negotiating with U.S. Over Trump’s Tariff Threat

On Saturday, Mexico’s president said he’s open to negotiating with the United States after President Donald Trump threatened to slap tariffs on all Mexican imports over immigration.

“I believe will be able to reach an agreement, because reason is will us,” Mexican President Andres Manuel Lopez Obrador said at a news conference in Veracruz, insisting that Mexico wants to maintain a good relationship with the United States.

Bilateral immigration talks geared toward averting the imposition of escalating tariffs on Mexican imports set to take effect on June 10.

At least the two sides are talking.

5. China Manufacturing Activity for May Slightly Higher Than Expected

A private survey of China’s factory sector showed on Monday that manufacturing activity was slightly better than expected. The Caixin/Markit factory Purchasing Managers’ Index for May was 50.2. Analysts were looking for a reading of 50.0. The PMI reading for April was 50.2.

Last week, China’s official manufacturing PMI for May came in at 49.4, lower than the 49.9 economists had forecast. It was lower than April’s reading of 50.1.

Despite the better-than-expected news, growth in China remains under pressure. Although Chinese officials have tried to stabilize the world’s second-largest economy, there is still an overall sense of economic pessimism sweeping China’s economy.