Markets in Details: 04 July 2019

4 July, 2019

Stocks rally but concern remains

Despite the fact that U.S. equities closed higher on Wednesday, the chip sector continued to underperform as it is one of the sectors, which were hardest hit by the ongoing trade war with China and uncertainties created by the Chinese telecommunications company Huawei blacklisting.

Several tech concerns including Dell, HP, Microsoft and Amazon were reported to be planning to move a significant part of their production out of China to avoid tariffs on U.S.-bound products. This follows an earlier move by Alphabet, Google’s parent company, to shift its U.S.-bound production to Taiwan also with the aim of avoiding tariffs.

Fundamentals are less than robust

Wednesday also saw the ISM Non-manufacturing PMI decline to 55.1% in June vs its May data of 56.9%. The reading confirms a slowdown in the non-manufacturing sector of the U.S., which accounts for a large part of economic activity.

Factory goods orders declined the third time in four months: there was a 0.7% decline in May. Also, the U.S. trade deficit widened to $55.5bn in May, and the real Q2 trade deficit was greater than the Q1 average, which contributed to a negative Q2 GDP outlook.

Initial jobless claims for the week ended June 29 decreased to 221,000, whereas continuing claims for the week ended June 22 decreased to 1.686 million. Both readings indicate that employers are reluctant to downsize in the current environment.

Traders will be keenly expecting to get further assessment of the strength of the U.S. economy on Friday when the June data on Nonfarm Payrolls and unemployment rate come out.

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