It’s Fed Day and expectations for a full dovish shift have fueled equity markets higher in recent weeks and truly all year. The S&P is about 1% from its all-time high and there is a 24.2% probability the Federal Reserve cuts rates.
Market sentiment received a solid boost after US President Donald Trump obtained concessions from the European Union to avert a transatlantic trade war. The United States and Europe have reached a deal to work towards “zero tariffs, barriers and subsidies on non-auto industrial goods” in a bid to defuse escalating trade tensions.
In perhaps the least surprising development of the year, the European Central Bank left all its interest rates and its asset purchase program unchanged in this morning’s monetary policy meeting. Headlines from ECB President Mario Draghi’s press conference follow:
Yesterday was the definition of what we have been preaching all week. There are many themes playing out but none more important than earnings. The S&P 500 and Nasdaq began ripping higher into the close on news that President Trump agreed to suspend implementing tariffs on the EU, most importantly on autos, after meeting with European Commission President Juncker.
It has been a rather volatile couple of days in the financial markets. Much of the volatility has been in the stock markets where the major indices rose sharply late in the day yesterday after the EU and U.S. diffused their trade disputes, only for the optimism to be met with a heavy 20% sell-off in Facebook shares in extended hours on the back of the social network’s poorly received earnings report and forward guidance.
Global equity benchmarks are ripping back this morning as trade tensions have found a way into the back seat of investors’ minds. In fact, the small-cap and domestically focused Russell 2000 notched a record high on Monday, matched it yesterday and extended such gains in today’s session.
U.S. markets are on course for another day in the red as we await the open on Tuesday, with futures down more than 1% as U.S. President Donald Trump threatens to intensify the trade spat with China.
Risk-off sentiment is sweeping through global markets after U.S. President Trump fired back at China last night. He instructed the U.S trade representative to identify $200 billion worth of Chinese goods to impose a 10% tariff. Crude oil recovered very well yesterday as speculation mounted that OPEC will only raise production 300,000 to 600,000 bpd. However, this morning, crude oil is a casualty of the risk-off, trade war fears.
It’s been a relatively mixed start to trading in Europe on Friday and the United States is on course to post small losses at the open, as the focus shifts from central banks back to trade.

E-mini S&P 500 (September)

Yesterday’s close (Thursday, June 14): Settled at 2788.50, up 9.50