Summary:

• Donald Trump and Jean-Claude Juncker strike an unexpected deal to avert a further trade war escalation
• US stocks and grains bounce on the agreement, USD gives back gains
• Facebook plunges over 20% in extended trading as the company disappoints with revenue

When the European Commission leader was heading for the United States to meet with the US President expectations for any binding agreement were pretty low. Nevertheless, it turns out that market participants did not appreciate both leaders’ power to strike a deal in order to avert a further disruptive trade war escalation. On Wednesday Donald Trump and Jean-Claude Juncker hammered out an agreement on trade saying that a meeting was a “new phase” in relations between the two economies and adding it was a “very big day for free and fair trade”. The leaders agreed to work together toward “zero tariffs” on industrial goods excluding cars though. Trump added that the joint work will be aimed at removing any duties, barriers and subsidies on non-auto industrial goods. He continued underlining that the US “will not go against the spirit of this agreement, unless either party terminates the negotiation.” What are the most important points?

Soybean rallied overnight in response to the Trump-Juncker trade arrangements. The major resistance is still ahead though. However, the increase shows how much grains are undervalued (immense sensitivity to any informations). Source: xStation5

First of all, the EU agreed to buy “a lot of soybeans almost immediately” and increase its imports of LNG from the US massively. And, basically that’s all when it comes to measures which are to come into effect “almost” immediately. Notice that the agreement largely means that the EU and the US will work toward reducing trade barriers, and it appears that “work” is the key word in this context. There is no doubt that the accord worked out by the two countries is the step toward right direction, albeit we reckon that it’s too early to claim the end of the trade war between both let alone tensions between the US and China. Either way, markets cheered and as a result US stocks surged at the end of the Wednesday’s session, the US dollar slumped (risk-on prevailed pushing EMs higher) while US yields moved up mirroring a capital outflow from safe haven assets. When the commodity market opens in the US we saw heavy increase in grains, and this is especially true in terms soybean which surged more than 2%. Corn gained 1.5% and wheat added 1%.

The NASDAQ (US100) drew a remarkable bullish candlestick on Wednesday. If the price is to head lower one may expect some difficulties in breaking the area localized around 7300 points. Source: xStation5

Beside the trade thread one needs to mention Facebook as its shares plummeted yesterday in post-market trading in response to the second quarter earnings. Admittedly, EPS came in at $1.74 and slightly beat the consensus at $1.72, revenue disappointed bringing $13.23 billion and falling short of the median estimate at $13.36 billion. That was not the end of gloomy numbers. Moving on, the number of global daily active users (DAUs) totalled 1.47 billion compared to 1.49 billion estimated by analysts (this number missed expectations irrespective of a region – North America or Europe). Margins decreased as well. Chief Financial Officer David Wehner said that that company expects margin compression with operating margins trending toward mid 30s (%). Indeed, it actually happened as the company reported operating margin in the past quarter at 44% down from 46%, and it was the third consecutive quarterly decrease. Taking into account the company’s updated guidance one should expect EBIT margin to continue shrinking. Furthermore, when we have a look at the year-over-year basis for monthly active users it proves that the downtrend has been present since mid-2017, and it has essentially accelerated of late boding not well for the company’s ability to make money.

Facebook’s monthly active user growth continues slumping being an ominous signal for the company’s future. Source: Bloomberg