What Traders Will Be Talking About This Week – China Bear Market, Another OPEC Output Hike, U.S. Economy, Fed

Chinese investors are taking out their concerns over an ongoing trade dispute between Washington and Beijing and a slowing economy by dumping shares of mainland China companies.

According to technical measurements, the benchmark Shanghai Composite closed officially in bear market territory – declining at least 20 percent from recent highs. Earlier in the year, the smaller Shenzhen Composite moved into bear market territory in February this year.

One key factor weighing on the market is the heightened trade tensions between the U.S. and China, the world’s two largest economies. While U.S. investors have shown relatively limited response to the macro-impact of the tariffs, the main worry that seems to be gaining traction in the global market place is more on the non-tariff parts, which is on investment restriction. This could lead to a disruption in the global production line and also global trade.

Apart from trade war concerns, the slowing domestic economy has also led to some concern among investors, with questions lingering about the economic outlook for the country. Additionally, last week, the Chinese currency extended its losses against the dollar. Last week, the People’s Bank of China set the official Yuan midpoint at its lowest level in six months.

With this week starting a new quarter, we should find out early if the bear market in China will be a major drag on the global stock markets. We expect to see volatility in the equity markets persist in the short-term with trade war news seemingly flowing every day. Therefore, it we have to conclude that it will be the long-term view of the trade war that actually drives the trend this quarter.

If investors continue to successfully price in risk exposure then eventually the market should become immune to trade war headlines. However, if investors have to continue to deal with fresh headline issues then investors may be forced to make one big risk adjustments, which means we could see a steep sell-off.

The first week of the new quarter could actually prove to be a turning point for the entire year. Looking at the performances in the NASDAQ Composite, the Dow and the S&P 500, which settled the first half of the year up 8.88%, down 1.80% and up 1.70% respectively, it looks as if the risk has been spread across the board. This divergence is making investors nervous.

Saudis to Add More Supply?

Crude oil traders are not only asking how much the Saudis will increase output just a week after agreeing to about a 1 million barrel increase a week ago, they are also asking how they are going to do it.

According to reports over the week-end, President Trump tweeted that he and King Salman agreed that Saudi Arabia would add more output to a market that hit its highest level in more than 3 years last week. Trump said threw out a 2 million barrel figure, but the Saudi’s haven’t commented on the size.

Some say that the Trump administration is trying to put the squeeze on Iran and Venezuela. Some are also saying that Iran may up the ante by threatening shipping interests in the Strait of Hormuz as a counter measure.

Traders and analysts agree that the introduction of politics into a game usually driven by the economics of supply and demand should add volatility to the markets. However, although talk of increased supply tends to drive prices lower initially, buyers may jump in on any sizeable price dip because over the near-term, traders are still expecting a tightly supplied market.

Get ready for an extremely volatile two-sided trade this week.

---

• Rate Hike Expectations Support Dollar, But Fed Members Express Concern…
• Trump, Suadi King Agree to Boost Production… But How Much and When?
• The Week Ahead – Stats, Tariffs and Monetary Policy to Drive the Markets
• How Can Bitcoin Be Used as A Crime Weapon? And How Can this Be Solved?

---

U.S. Non-Farm Payrolls Report, Fed Minutes

The NFP is expected to show the economy to have created 198,000 jobs in June, down from 223,000 the previous month. The unemployment rate is expected to hold steady at 3.8 percent and average hourly earnings are projected to come in at 0.3 percent month-on-month and 2.8 percent from a year ago.

The report appears to be pretty consistent with other reports so investors may shift their focus to possible events before the report is released. Remember that last month, President Trump tweeted about the report before its release. Traders may watch the president’s Twitter account before the release of the report, therefore, adding to the expected volatility.

As far as the Fed minutes are concerned, traders will be looking for any comments on trade disputes and their potential risk to the positive outlook for the economy. Traders will also be looking for information on the debate on inflation overshooting the 2-percent target and hiking rates past neutral.