Who Says You Can’t Have a Trade War Without Volatility?

Stocks rebounded nicely on Monday, despite the burgeoning trade war between the U.S. and China.

Nothing’s changed on that front. But no news was apparently good enough for a market bounce.

If the stock market is the score card, the Shanghai Composite’s 22% loss (as of last week) suggests that China isn’t faring as well as the U.S.

Of course, this battle is still in the early innings.

Just last Friday, the U.S. imposed tariffs on $34 billion worth of Chinese imports, turnrning rhetoric into reality.

China retaliated with its own duties on U.S. goods.

We’ll see which country blinks first in the standoff.

I’m not sure President Trump has the right approach… but I agree with his goal of leveling the playing field.

You often hear trade deficits mentioned as the reason for the tariffs.

However, China’s intellectual property theft from U.S. companies poses a bigger threat than any imbalance.

Show of Strength

The Institute for Supply Management’s manufacturing index is still on fire. The forward-looking indicator surprised to the upside in June, coming in at a strong 60.2.

Readings above 50 imply an increase in activity levels, while a move over 58 implies manufacturing growth of about 4%.

The ISM manufacturing index is a proven market mover, but this upside surprise didn’t move the market whatsoever.

A Minute of Our Time

I didn’t think the minutes from the Federal Open Market Committee’s June meeting would move the markets.

I was right.

The market already registered its disapproval of the Federal Reserve’s plan to hike rates twice more, despite a flattening yield curve and an intensifying trade war.

Traders bought the long end of the curve, reducing its slope even more.

Since last month’s rate hike, the difference between 30- and two-year yields has compressed from 55 basis points to a measly 39 basis points.

If the Fed delivers on its targeted rate hikes, the yield curve could invert. We don’t want that to happen. An inverted yield curve usually means a U.S. recession.

The minutes showed that at least some Fed officials appear concernrned about the yield curve and feel it’s important to monitor. So, that’s a relief!

On the Payroll

Friday’s payroll report was a mixed bag.

Here’s the good news: the U.S. economy created 213,000 non-farm jobs in June, topping the consensus estimate of 190,000 new positions. The labor participation rate also climbed to 62.9% from 62.7%.

Don’t get too excited.

Here’s the bad news: the unemployment rate increased to 4% from 3.8%.

What happened? More people entered the workforce than were hired.

Wages increased 0.2% on the month, falling shy of the expected 0.3% uptick. On a year-over-year-basis, wages grew 2.7%; the consensus had called for wage inflation of 2.8%.

That wasn’t enough to get a tradeable rise (or fall) out of the market.

On the Horizon

Later this week, we’ll get a couple important inflation gauges.

Most important, the June consumer price index (CPI) will be out Thursday mornrning.

CPI is tracking above the Fed’s 2% target. A surprise fall or jump in CPI is a proven market mover so, stay alert!

Hit the Accelerator

At Treasury Profits Accelerator, volatility is our friend!

When the Treasury market overreacts to surprise developments (economic or otherwise), we pounce on these short-term trading opportunities.

Happy trading to you,