- China and the US need constructive dialogue
- Walmart stock helped the Dow Jones index to flex its muscles
- US refineries are trading at the highest rate since in nearly a decade
The risk-off sentiment has lost its charm to some extent. On the other hand, investors remain hopeful that both China and the US would be able to have some sort of constructive dialogue. Both countries need to resolve their dispute and meet somewhere which can be called a happy ground. Additionally, If Trump thinks that it can bend China’s arm by force then certainly his head is in the clouds and if China is of the kind frame that it is dealing with someone who has the same attitude as the previous administration, they will get another a reality check. Moreover, we have seen a lot of optimism on Wall Street last night about this and investors over in Europe are ready to build on this.
One particular reason that why the US futures are trading strong is because of the stellar results by Walmart. Corporate earnings still have enough fire to drive the indices higher. The quarterly earning result by Walmart pushed the company’s stock up nearly by 9.3% thanks to the biggest jump it experienced in its sales. This massive surge in Walmart stock helped the Dow Jones index to flex its muscles. Basically, what investors will be positive about today is that they do not have to rely on the tech stocks only to see the market rallying. Walmart is dominating that space.
The sell-off in tech stocks and in commodities have also eased off somewhat as Turkey’s tensions have taken a back seat for the time being. In addition, Investors believe that Erdogan who has history and a strong track record of successfully dealing with various kind of crisis would be able to resolve the current dispute.
However, if the situation deteriorates any further, it will these tech stocks which could pull the markets lower again. Moreover, if the Chinese and US trade tariff talks do not move towards a more positive end, there is a strong possibility of carnage in the markets. Both country leaders are likely to adopt a tit-for-tat strategy which would an adverse impact on the commodity stocks, a sector which is already suffering. So far investors have punished the markets in a way that they could and this is only because the large number of them think that the current trade spat between the US and China is only a Trump tactic to get things done his way. Furthermore, Trump would need to put these concerns behind him before his midterm which isn’t too far because of this uncertainty continues to linger, it will not yield any healthy dividend.
In the commodity space, there isn’t much of hope for oil especially when the data from the EIA shows that ample supply has built up again. The negative effects from the EIA report which printed its biggest weekly build in almost a decade has pushed the bulls to a corner. On top of that, the US refineries are trading at the highest rate since in nearly a decade. This only means more supply on the market. If you further look at the supply equation, it becomes clear that the OPEC production has also increased by 41,000 b/d during the month of July. Yes, countries like Iran, Libya have seen a drop in their production but it is countries like the UAE and Kuwait which have ramped up the production. On the demand side, what we have is a major disruption due to the heightened geopolitical situation. This doesn’t gel well if you make the argument that the economic outlook for the world is looking strong and this would push the oil price higher.
