Stocks jumped at the open after Presidents Trump & Xi agreed to pause further trade tariffs and re-start negotiations. The Dow is currently up 133 pts and the SPX is up .74%. In fact, the SPX touched an all-time high this morning. The best performing groups today are not surprisingly those that were hit hardest by the trade war: semiconductors and retailers. But we’re also seeing a 1% bump in financials despite the fact that interest rates aren’t rising. Commodities are mixed today. Traders are generally shifting to risk, so it’s not surprising to see gold down 1.4%. WTI crude oil climbed to nearly $59/barrel. But strangely, the bond market is not selling off. Bond traders are ignoring the G-20 trade war truce because of weak manufacturing data (see below). The 10-year Treasury yield is hovering around 2.02%.

At the G-20 summit, President Trump and his Chinese counterpart Xi agreed to re-start trade negotiations. Mr. Trump pledged to ease restrictions on American firms doing business with China’s Huawei. In addition, both sides will refrain from further trade tariffs pending the outcome of a new round of trade talks. This is why the stock market shot up at the open.

The trade war is clearly impacting manufacturing around the world. ISM’s US Manufacturing Index fell in June to 51.7 from 52.1 in the prior month. Economists were expecting a bigger decline, but that is little consolation. The forward-looking “new orders” component of the survey dropped to 50.0. The takeaway is that business activity in the factory sector is stagnating. In addition, China’s official purchasing managers index (PMI) suggests manufacturing activity is declining in the world’s second-largest economy. Ditto for the Eurozone, where the PMI fell to 47.6. As with any PMI, 50.0 is the dividing line between expanding and contracting business activity. Taken together, these reports constitute the reason why bond yields refuse to move higher even after the G-20. According to Bloomberg, bond futures traders are pricing in Federal Reserve interest rate cuts of almost .75% in the back half of 2019.

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