For two countries about to engage in top level trade negotiations, the atmosphere between the US and China seems to be increasingly toxic. A series of antagonistic moves are being made which surely leaves a significant cloud over the talks, even before they have begun. The US has placed 28 Chinese companies and organisations on its banned “Entity List”, whilst also placing visa bans on several Chinese officials. Apparently, the Chinese trade delegation is already planning on cutting short its visit by one day, whilst vice Premier Liu He has not been given the “special envoy” status by President Xi, meaning that no real decisions can be made in the talks. It seems that the trade negotiations will struggle to achieve any sort of progress that the global economy needs to prevent the further escalation into all out trade war between the two economic powerhouses. Subsequently, we see risk appetite under renewed pressure. This is impacting across markets with Treasury yields falling back, the yen strengthening, gold is also ticking higher, whilst on the flip-side we see equities are struggling. Add in the background noise of potential impeachment for President Trump and Brexit seemingly careering towards a “no deal” conclusion, it is a difficult to be sitting in bullish sentiment positioning right now. One chink of light, is the dovish outlook of Fed chair Powell, who has been talking about further rate cuts and Fed bond purchases (QE, but by another name?) to improve overnight liquidity issues. Could that be enough to boost sentiment? That aside, it is still safety first, and that seems to include the dollar too.
Wall Street closed sharply back lower with the S&P 500 -1.4% at 2893. However, with US futures +0.3% this morning, there is a slightly less negative view on Asian markets than could have been seen (Nikkei -0.6%). European markets are cautiously positive, with FTSE futures +0.1% and DAX futures +0.1%. In forex there is a mixed outlook for USD this morning, whilst GBP remains under pressure from Brexit fears. In commodities, gold is again trading on the bid, whilst the deterioration in the expectation on the US/China talks is weighing on oil again.
It is a quiet day on the economic calendar but the Fed minutes will be key. The US JOLTS jobs openings at 1500BST will be the first release of any note, with consensus expected to slip slightly to 7.191m in August (from 7.217m in July). The EIA oil inventories at 1530BST will be key for oil, with another crude oil inventory build of +2.6m barrels expected (+3.1m barrels last week), whilst distillates are expected to drawdown by -2.2m barrels (-2.4m last week) and gasoline stocks expected to drawdown by -0.3m barrels (-0.2m last week). The FOMC minutes for the September meeting are at 1900BST and focus will be on just how the committee is split on further rate cuts and what could drive them to cut again.
However, it is another day that we need to keep an eye out for Fed speakers. Once more, Fed chair Jerome Powell is speaking, at an event hosted by the Kansas City Fed at 1600BST, although the significance of this may be reduced considering he spoke just yesterday. However, it will be interesting to hear the views of the FOMC dissenter, Esther George (voter, hawk) who is speaking at the same event in Kansas at 1600BST. Has George shifted her stance given the recent data?