Wrong Response by Trump to China’s Countermeasures Threat Could Blow Up Trade Deal

There’s a breaking story out of Asia early Wednesday that could blow up into something major later in the day if U.S. President Trump decides to exacerbate the issue. The current price action in the financial markets indicates a sense of caution may be developing in the financial markets with safe-haven assets – Treasury bonds, Japanese Yen and gold turning higher, while demand for risky assets is edging lower.

According to reports, China is threatening to take countermeasures against the U.S. in response to a bill that favors the Hong Kong protesters, the Chinese Foreign Ministry said Wednesday.

That is a pretty bold threat to make while the United States and China are trying to finalize the first phase of a partial trade deal agreed upon on Friday. It’s also closely similar to the threat China made against the National Basketball Association (NBA) before it caved to pressure from the Chinese government last week after an NBA team official made comments supporting the Hong Kong protesters.

The Background

Three bills were approved in the House of Representatives Wednesday evening, one supporting the right of individuals to protest, another allowing for the U.S. to check on Beijing’s influence over the territory and a third aimed at preventing U.S. weapons from being used by police against protesters.

China’s Response

“If the relevant act were to become law, it wouldn’t only harm China’s interests and China-U.S. relations, but would also seriously damage U.S. interests,” said Geng Shuang, China’s Foreign Ministry spokesperson, in a statement on the body’s website. “China will definitely take strong countermeasures in response to the wrong decisions by the U.S. side to defend its sovereignty, security and development interests.”

Geng said while China was working to restore law and order in Hong Kong, U.S. lawmakers were “disregarding and distorting facts,” by turning criminal acts and violence against police into issues of “human rights or democracy.”

“That is a stark double standard. It fully exposes the shocking hypocrisy of some in the U.S. on human rights and democracy and their malicious intention to undermine Hong Kong’s prosperity and stability to contain China’s development,” said Geng, who urged the U.S. to “stop meddling.”

Trump’s Problem

Last week, CNN reported, Trump, in a call with Chinese President Xi Jinping, promised that the U.S. would stay quiet on the Hong Kong protests while the two countries continued to negotiate a possible end to the ongoing trade war.

Early Wednesday, traders are taking precautionary positions in response to the comments from China’s Foreign Ministry Spokesperson. Bonds, gold and Japanese Yen are being bought and stocks in the U.S. and Europe are being sold.

What traders could be waiting for is Trump’s response. Will he defy his promise to Chinese President Xi Jinping, or will he remain silent?  It’s highly unusual for Trump to remain silent for too long especially when a foreign country threatens the U.S. with “strong countermeasures.”

Traders should keep an eye on this story because it could develop into something major during the trading session. Somewhere, somehow, somebody in the press may try to push Trump’s button’s to get a response, and if they push the wrong one, Trump could say something to shake up the financial markets.

Trump certainly knows how to pick his battles. He’s usually quick to respond to comments from CEO’s, coaches, athletes, politicians and celebrities. However, if he doesn’t speak up, he’ll show the world that he just gave in to pressure from China, the country he keeps saying is weaker than the United States.

Two-Weeks Before Fed Meeting, Policymakers Remain Divided Over Rate Cut

It’s not too early to start thinking about the U.S. Federal Reserve’s next move on interest rates. With two weeks to go until their next monetary policy meeting on October 29-30, U.S. central bank policymakers appear unconvinced phase one of a partial U.S.-China trade deal is enough to dismiss the policy uncertainty that has weighed on U.S. economic growth for months.

At the same time, Federal Reserve decision-makers remain far from united behind additional rate cuts beyond the two cuts they made in July and September with unemployment at a 50-year low and consumer spending strong.

On Tuesday, it was San Francisco Fed President Mary Daly and St. Louis Federal Reserve President James Bullard’s turn to voice their opinions about the direction of interest rates.

Off-Setting Views

On Tuesday, Daly told reporters after a speech at the Lost Angeles World Affairs Council & Town Hall, “Right now, I see the economy in a good place, and policy accommodation in a good place.”

However, businesses retain an overarching sense of uncertainty, Daly said, even though “the gusting (of headwinds) seems to have gone down a little bit on the news of some progress on Brexit, some progress on trade negotiations between the U.S. and China.”

Current weak inflation levels, and a three-year inflation outlook among U.S. consumers falling to its lowest level on record, has caught her eye.

On Tuesday, a report showed the inflation outlook among U.S. consumers remained muted in September, rising slightly over the near-term but falling to the lowest level on record over a three-year time frame since the New York Federal Reserve began its monthly survey of consumer expectations in 2013.

Although Daly expressed some concerns over low inflation, she still expects it to rise back to the Fed’s 2% target, and believes the Fed’s two rate cuts so far this year, in July and September, will help sustain the longest U.S. expansion in history.

“In terms of what to do going forward, I would like to see additional data, because the economy is in a really good place right now,” Daly said.

Speaking in London, Bullard painted a gloomier picture. Like Daly, he sees what he called continued “trade regime uncertainty” as a key risk to the U.S. economy. However, he also put more emphasis on continued weak inflation and slowing global growth.

Unlike Daly, who sees Fed policy as currently “slightly accommodative”, Bullard said on Tuesday in his view policy may be “too restrictive”.

As a result, the Fed “may choose to provide additional accommodation going forward, but decisions will be made on a meeting-by-meeting basis,” Bullard said.

Fed Still Divided

Two weeks before the Fed’s interest rate decision, and policymakers still haven’t budged from their September meeting positions.

One group like Fed Chair Jerome Powell believes the outlook is generally positive. Another believes the U.S. economy needs even easier policy to avoid sinking into a recession. Still a third group believes the Fed has gone far enough or even a little too far in trying to revitalize the economy. Their biggest fear is a too-easy policy could lead to financial instability if investors take on too much risk and asset values get stretched.

As of Tuesday’s close, investors expect Fed policymakers to reduce rates when they meet October 29-30. According to the CME FedWatch Tool, the latest probability of a 25-basis point Federal Open Market Committee (FOMC) rate cut is 75.4%.

The focus ahead of the next Fed meeting will be on U.S. economic data. This week, the key report is Retail Sales. Next week, it’s Durable Goods. On October 29, the Conference Board releases its Consumer Confidence report. On October 30 while the Fed is meeting, a report on Advance GDP will be released.

Unfortunately, Fed members won’t have the chance at this meeting to react to data on Personal Spending and the Core PCE Price Index.

Additionally, ISM Manufacturing, which last month posted its second consecutive contraction, will be released on November 1 along with the October Non-Farm Payrolls report.

This could be a problem for Fed members because some may favor another rate cut in anticipation of a weak ISM Manufacturing report, and some may pass on a rate cut due to expectations of a solid jobs report.

Impressive Earnings Reports Provide Clarity for Investors

What a relief! Finally a day when we didn’t have to watch the box all day scanning for meaningless U.S.-China trade talk headlines Yes, earnings season began with a flurry of activity on Tuesday, allowing us to focus on the reports and only the reports. It certainly made trading easier because the numbers were cut and dry. There was very little to read into, very little was left to interpretation. The reports were either bullish or bearish.

In the cash market on Tuesday, the benchmark S&P 500 Index settled at 2995.68, up 29.53 or +1.01. The blue chip Dow Jones Industrial Average finished at 27024.80, up 237.44 or +0.91% and the technology-driven NASDAQ Composite Index closed at 8148.71, up 100.06 or +1.27%.

The big takeaway this week for traders is the impact of clarity. We learned on Monday that a lack of clarity usually has a negative impact on investor decisions, encouraging them to shed risky assets. Tuesday taught us that clarity over earnings brings them right back then.

Since it’s “the market”, I don’t expect bullish earnings reports to line up like they did on Tuesday. We’re likely to see days featuring mixed reports. Furthermore, we’re likely to see both bearish and bullish headlines on the progress of the trade talks. For that matter, you can throw in headlines about Brexit. Since we’re coming down to the deadline set for October 30, this phenomena has been capturing its share of headlines lately. It was reported on Tuesday that upbeat news over Brexit contributed to the rally.

Investors Bullied by Headlines

As I wrote earlier, this week’s price action in the stock market has been all about the impact of clarity on an investor’s decision process. I’m sure you heard the old adage, “when in doubt, stay out” for investors looking to enter a new position, and “when in doubt, get out” when holding a position.

In my opinion, trying to keep up with the headlines is primarily behind trader indecision. Furthermore, traders have even built algorithms to generate buy and sell signals on key words. This could be the source of stock market volatility also. Additionally, even the headline writers at Bloomberg, Reuters and CNBC aren’t telling you anything useful. Most of the time the headline is late and the story is stale by the time traders act upon it.

I think you’ll have more success if you react to numbers in a report and the price action than a headline unless the headline is stating a fact. Any headline implying hope, fear or greed is dangerous.

Last week, CNBC’s Jim Cramer warned against trading stocks on the roller coaster of U.S.-China headlines. Markets are “hostage to events that are not only totally out of our hands, but totally out of the president’s hands,” Cramer said on “Squawk on the Street.”

“I am describing an unfathomable market,” declared, “where if you have conviction, you are out of your mind,” meaning fundamental cases for buying or selling are useless.

Just the Fact Ma’am

If you’re going to trade the headlines then look for something that states a fact. On Tuesday, Reuters said, “JPMorgan Hits Record High, Lifts Bank Stocks, UnitedHealth Eyes Best Day in Eight Years, and JNJ (Johnson & Johnson) Set for Biggest One-Day Percentage Gain Since January. Those are facts.

“Brexit Deal Hopes Brighten Sentiment” – “Hope and Sentiment” – the kiss of death for traders. Clarity breathes life into a market.

US Stock Market Overview – Stock Rally Driven by Healthcare and Robust Bank Earnings

Stock prices moved higher on Tuesday as riskier assets gained traction. As stock prices move higher, US yields move in tandem. The higher yields reflect the market’s belief that a trade agreement could occur. Better than expected earnings were released on Tuesday in the banking sector which buoys the US stock market, raising yields and pushing gold lower. Most sectors were higher, driven by healthcare, and technology shares, consumer staples, and utilities bucked the trend. Financials were also a robust performer following stronger than expected earnings.

Banks Beat the Street

In the banking sector, shares of JPMorgan Chase, rose 3.25% after the bank reported better than expected financial results. The company continued to see strength in both its consumer and investment-bank businesses. JPMorgan reported a profit of $9.08 billion, or $2.68 a share. Expectations had been for earnings of $2.45 a share. A year earlier, the bank reported a profit of $8.38 billion, or $2.34 per share. Revenue from non-lending operations at the bank jumped 13% to $15.11 billion. In the bank’s consumer unit, revenue rose 7% to $14.26 billion and in the corporate and investment bank it rose 6% to $9.34 billion.

Citi also beat on the top and bottom line. Citi reported earnings of $1.97 per share versus expectations that the company would earn $1.95 per share. Revenue came in at $18.6 billion versus expectations that the firm would post revenue of $18.545 billion. Fixed-income trading posted revenue of  $3.211 billion versus expectations of $3.09 billion. Net interest margin came in at 2.56% versus 2.66% forecast.

Not all the banks beat. Goldman Sachs disappointed. The company said that profit slumped 26% to $1.88 billion, or $4.79 a share, below the $4.81 expected. Revenue fell 6% to $8.32 billion, slightly above the $8.31 billion expected, on lower results in the firm’s investing and lending and investment banking divisions.

Healthcare Rallies on J&J Earnings

Healthcare was the best performing sector in the S&P 500 index following robust financial results from Johnson & Johnson. The company reported earnings per share $2.12 versus $2.01 expected. Revenue came in at $20.73 versus $20.07 billion expected. J&J also raised its full-year guidance and now sees earnings of $8.62 to $8.67 per share, with revenue in the range of $81.8 billion to $82.3 billion. Prior to the report, analysts were expecting full-year earnings guidance of $8.53 to $8.63 a share on revenue of $82.4 billion to $83.2 billion.

E-mini NASDAQ-100 Index (NQ) Futures Technical Analysis – Upside Momentum Targets 7956.50, Followed by 7973.75

December E-mini NASDAQ-100 Index futures are trading sharply higher after the cash market opening on Tuesday after a string of stronger-than-expected earnings reports in the banking and healthcare sectors spilled over to the technology sector.

Investors are also showing little concern over U.S.-China trade relations despite dampened hopes of a permanent trade deal. This likely means that investors feel optimistic that an agreement will eventually be reached, but that it will be a complicated process.

Furthermore, as long as the two-sides are still talking, it’s hard to be bearish. But a collapse in talks will be bearish.

At 14:19 GMT, December E-mini NASDAQ-100 Index futures are trading 7915.00, up 57.50 or +0.73%.

E-mini NASDAQ-100 Index
Daily December E-mini NASDAQ-100 Index

Daily Technical Analysis

The main trend is up according to the daily swing chart. A trade through 7918.50 will signal a resumption of the uptrend. The main trend changes to down on a move through 7583.25.

The short-term range is 7973.75 to 7474.25. Its retracement zone at 7783.00 to 7724.00 is support. Trading above this zone will continue to generate a strong upside bias.

Daily Technical Forecast

Based on the early price action and the current price at 7915.00, the direction of the December E-mini NASDAQ-100 Index futures contract the rest of the session on Tuesday is likely to be determined by trader reaction to the downtrending Gann angle at 7910.50.

Bullish Scenario

A sustained move over 7910.50 will indicate the presence of buyers. Taking out last week’s high at 7918.50 will indicate the buying is getting stronger. This could trigger a surge into a downtrending Gann angle at 7956.50.

The angle at 7956.50 is the last potential resistance angle before the main tops at 7973.75 and 8002.50.

Bearish Scenario

A sustained move under 7910.50 will signal the presence of sellers. If this move is able to generate enough downside momentum then look for a potential acceleration to the downside with the next target a downtrending Gann angle at 7818.50, followed by the short-term Fibonacci level at 7783.00.

Wall Street Investors Gearing Up for Earnings Season

After Monday’s lackluster trade, due to the extended holiday week-end, stock market investors will be gearing up for the start of earnings season, which kicks off on Tuesday with 52 S&P 500 companies expected to report by the end of the week. Here are the most important factors to consider before trading on Tuesday.

Big Banks on Deck

Investor focus will be on the big Wall Street banks as J.P. Morgan Chase, Citigroup, Goldman Sachs and Wells Fargo are expected to report on Tuesday, Bank of America on Wednesday and Morgan Stanley on Thursday.

According to Reuters, “The big U.S. banks are expected to report a 1.2% decline in earnings due to falling interest rates, a raft of unsuccessful stock market floatation and trade tensions.”

FactSet is expecting S&P 500-financial company earnings to drop 2.6% this quarter, weighed down by the Federal Reserve lowering interest rates twice since July, which pressures bank’s main business of deposits and lending.

Overall Earnings Weakness

Reuters also said, “Overall, analysts are forecasting a 3.2% decline in profit for S&P 500 companies for the quarter from a year earlier, based on IBES data from Refinitiv.

Analysts at FactSet presented a more bearish outlook, saying as the season kicks into gear this week, S&P 500 firms are expected to report a 4.6% earnings decline over the same period a year ago. If the period ends up with a negative number, that will make three quarters in a row, the first time that’s happened in three years.

Quarterly Market Outlook

Analysts at Edward Jones are saying, “Stocks appear on track to finish the year strong, with the S&P 500 near a record high, despite a volatile past quarter during which slower global growth and trade tensions caused recession fears to spike.”

“Twists and turns on the U.S./China trade front continue to drive market swings, with stocks rising last week on optimism that both sides are looking at a phased approach to a trade deal, which was announced after market close on Friday.”

“This incremental progress is encouraging, but additional phases of agreement or a larger deal that includes key issues like intellectual property, technology transfers and enforcement will likely take more time.”

“Thus, trade issues will remain a source of volatility. More broadly, we expect stocks to continue to rise but at a slower pace than they have over the past few years, supported by ongoing economic growth, earnings growth and lower interest rates.”

US Stocks Retreat on Trade Deal Uncertainty, but Losses Dampened by Light Holiday Trade

The major U.S. equity indexes settled slightly lower on Monday in a generally lackluster trade due to the U.S. Columbus Day holiday. Although it was not an official U.S. bank holiday, several banks were closed as well as the Treasury market. The price action suggests many of the major investment firms took advantage of a long-holiday weekend.

In the cash market on Monday, the benchmark S&P 500 Index settled at 2966.15, down 4.12 or -0.14%. The blue chip Dow Jones Industrial Average finished at 26787.36, down 29.23 or -0.11% and the technology-based NASDAQ Composite closed at 8048.65, down 8.39 or -0.11%.

Stocks Pause

U.S. stocks paused on Monday after posting gains the three previous sessions as a lack of clarity over “phase one” of a U.S.-China trade agreement weighed on investor sentiment, while investors enjoyed an “unofficial” holiday, ahead of the start of the third-quarter earnings season.

Investors were upbeat at the start of the futures market session on Sunday after the S&P 500 and Dow Jones indexes ended Friday with their first weekly gain in a month and President Trump signaled the two economic powerhouses had taken a major step in easing the back-and-forth tariffs measures that have hammered global growth this year.

However, prices quickly retreated after a Bloomberg News report said that Chinese officials would like to continue trade talks before signing phase one of the deal and moving on to phase two.

Additionally, gains were capped after President Trump acknowledged that the agreement could still collapse, while Treasury Secretary Steven Mnuchin said on Monday he had “every expectation” that if a U.S.-China trade deal was not in place by December 15, additional tariffs would be imposed.

The price action suggests investors are still trying to grasp the concept of a trade deal done in phases. However, if investors were really skeptical about the matter, the markets would’ve sold off a lot harder. This indicates they may be comfortable with the idea that both sides are still talking.

Empire State Manufacturing Index Edges Higher

It was a light day on the data front. There were no early session reports, but the Empire State Manufacturing Index was released at 20:00 GMT. The report was posted about 18 hours earlier than expected, due to “technical difficulties”, according to a Fed spokeswoman.

The New York Federal Reserve’s Empire State business-conditions index showed slight improvement in October. The report showed that a rebound in sentiment pushed the headline Empire State Index up to 4 in October from 2 in the prior month. Economists were looking for a 0.8 reading, according to Econoday.

The Empire State index is closely watched as one of the first indicators of a month’s manufacturing activity. Recent reports have been flat as regional manufacturing has been impacted by the trade war between the United States and China, the sluggish global economy and the strong U.S. Dollar.

E-mini NASDAQ-100 Index (NQ) Futures Technical Analysis – Dull Trade as US Holiday Drives Down Volume

December E-mini NASDAQ-100 Index futures treaded water on Monday during the cash market session after posting a wicked two-sided swing in the pre-market. The rangebound trade was driven by below average volume due to the Columbus Day holiday in the United States. Although not an official bank holiday, some banks were closed, but more importantly, the Treasury market was shut down for the day.

At 19:50 GMT, December E-mini NASDAQ-100 Index futures are trading 7860.00, up 1.00 or +0.01%.

The index was trading higher early in the session as traders continued to respond to Friday’s announcement of “phase one” of a partial trade deal between the United States and China. However, the index reversed course and moved lower for the session after Bloomberg News reported that China wanted to continue to hold more talks before signing the deal. After the sell-off, the market returned to unchanged for the session before settling into an intraday range.

E-mini NASDAQ-100 Index
Daily December E-mini NASDAQ-100 Index

Daily Technical Analysis

The main trend is up according to the daily swing chart. The trend turned up on Friday when buyers took out the previous swing top at 7799.75.

A break back below 7799.75 will indicate weakness, but the trend won’t change to down unless 7583.25 is violated.

The short-term range is 8002.50 to 7474.25. Its retracement zone at 7783.00 to 7724.00 is support. Holding above this zone will help maintain the upside bias.

The major support zone comes in at 7624.50 to 7535.00.

Daily Technical Recap

On Monday, the December E-mini NASDAQ-100 Index found support on a downtrending Gann angle at 7826.50. This was slightly above the short-term Fibonacci level at 7783.00.

On the upside, the intraday high fell short of a resistance cluster created by a downtrending Gann angle at 7914.50, last week’s high at 7918.50 and an uptrending Gann angle at 7922.25.

Side Notes

Monday’s inside move suggests investor indecision and impending volatility. The extremely low volume helped contribute to the sideways price action.

If investors decide to shake off the news about China then look for the index to continue to claw towards the pair of tops at 7973.75 and 8002.50.

If investors determine there is risk to the partial trade deal then look for a near-term pullback into 7783.00, followed by 7724.00.

U.S. Stocks Turn Lower as Investors Sour on ‘Phase One’ Trade Deal

The major U.S. stock index futures turned lower for the pre-market session Monday morning and hedgers returned to the Treasury bonds, gold and Japanese Yen after China said it needed to have further discussions before it would sign off on the so-called phase one trade deal President Donald Trump announced on Friday.

The early market price action has the S&P 500 Index opening about 0.42% lower, the Dow off by 95 points or 0.35% and the NASDAQ Composite trading about 0.54% lower.

China Wants More Talks Before Signing ‘Phase One’ Deal

According to a Bloomberg report, China trade officials wanted more talks by the end of October to discuss details of the “phase one” trade deal.

This now has investors wondering if the additional tariffs originally scheduled to start on October 15, and suspended as of Friday, are back on. We’ll probably hear more about this from the Trump administration later in the session.

On Friday, President Trump announced that the first phase of a deal with China had been agreed, though officials on both sides said much more work needed to be done.

However, the deal that does not include many details and Trump has warned it could take up to five weeks to get a pact written. Furthermore, analysts are saying it appears to be more of a “temporary” than a real trade pact.

Investors took no chances upon hearing the news. Besides driving stocks lower and erasing some of Friday’s gains, hedgers drove December Treasury Notes 0.46% higher. December Comex gold futures rose 0.73% and the Japanese Yen jumped 0.24% higher. These protection moves are likely to increase if investors continue to turn sour on the deal.

Asian Markets Up, Europe Down

Shares in Asia rose in reaction to Friday’s partial trade deal news. Investors had no reaction to the Bloomberg report, which came out after the Asian markets had closed.

The major bourses in Europe turned lower after the report was released. According to CNBC, the pan-European Stoxx 600 slipped 1.1% during the morning trade, with basic resource stocks losing 2.6% to lead losses as all sectors traded in negative territory.

The Bloomberg report was not a complete surprise as Citi analysts pointed out in an earlier report.

“Despite what appears to have been achieved in the October talks, we remain cautious on an eventual trade deal,” the analysts wrote in a note. “The US offers are far from what China has been demanding, as showcased in its June State Council White Paper:  reasonable purchases of US imports, removal of existing tariffs, and giving the trade document a balanced treatment.”

In other news, customs data showed that China’s import and export figures were worse than expected in September, with exports falling 3.2% on the year in U.S. dollar terms, while imports declined 8.5%, according to Reuters.

Stocks Rise as Partial Trade Deal Lays Groundwork for Truce on Additional Tariffs

The major U.S. equity indexes rose last week with the rally primarily driven by optimism that U.S. and Chinese trade officials made sufficient progress in negotiations to bring the two economic powerhouses closer to a permanent end to their more than 15-month trade dispute.

At the end of the week, President Trump announced that both sides had agreed to a partial trade deal or phase one of a series of partial trade deals. It wasn’t the ground-breaking news that many investors had hoped for, however, it day lay the groundwork for a truce on additional tariffs.

In the cash market last week, the benchmark S&P 500 Index settled at 2970.27, up 0.6%. It’s up 18.5% for the year. The blue chip Dow Jones Industrial Average finished at 26816.59, up 0.9%. It’s posted a 15.0% gain so far this year. The technology-based NASDAQ Composite closed at 8057.04, up 0.9%. In 2019, it’s up 21.4%.

What’s the Deal with the Partial Deal?

U.S. equities were unpinned at the end of the week after President Trump said China and the U.S. reached the first phase of a substantial trade deal that delays tariff hikes that were to kick in this week.

Late in the session on Friday, Trump told reporters at the Oval Office that phase one of the trade deal will be written over the next three weeks.

As part of this phase, China will purchase between $40 billion and $50 billion in U.S. agricultural products. Trump also said the deal includes agreements on foreign-exchange issues with China. In exchange, the U.S. agreed to hold off on tariff hikes that were set to take effect Tuesday.

Additionally, Treasury Secretary Steven Mnuchin said both sides struck an “almost complete agreement” on currency and financial services issues. Phase two of the deal will “start almost immediately” after the first one is signed, Trump said.

Big Tech, Banks and Chipmakers Liked the News

Despite quite a few calls for caution, at the end of the trading session, the data revealed that Big Tech, Banks and chipmaker investors liked the news. Since stock investors tend to discount future events, they were probably happy because the tariffs that were set to begin on October 15 had been suspended.

The previous tariffs are still in place, but they have been priced into the market. On September 11, President Trump announced that he was delaying plans to impose an additional 5 percent duty on $250 billion worth of Chinese goods on October 15. These tariffs will be suspended with the partial deal in place.

Stocks rose on the news because many investors had sold on September 11 so it’s catch up time for them.

At the end of the session, Facebook, Amazon and Google parent Alphabet were all up at least 0.5%.

Last week’s rapid rise in Treasury yields caused by investors exiting their bond market hedges, made bank stocks more attractive with Bank of America and J.P. Morgan Chase surging more than 1.6% each.

Finally, chipmakers, which had been the center of attention due to tariffs and sanctions against Chinese communication giant Huawei, rose broadly. Among the winners, Micron Technology gained more than 4%, while Xilinx climbed 3.7%.

The Week Ahead – Brexit, Earnings, Stats and the IMF and EU Summit in Focus

On the Macro

For the Dollar:

It’s a busier week ahead on the economic calendar.

NY Empire State Manufacturing figures for October get the week going on Tuesday. The focus will then shift to September retail sales figures due out on Wednesday.

With a heavy reliance on consumer spending, the numbers will need to be in line with forecasts to provide Dollar support.

On a busy Thursday, September building permit and housing start figures are due out along with October’s Philly FED Manufacturing numbers.

September industrial production and the weekly jobless claims figures are also due out.

With no material stats due out on Friday, Wednesday’s retail sales and Thursday’s Philly FED numbers will have the greatest impact.

Outside of the stats, trade war chatter will continue to be a factor, as will any further talk of impeachment.

The Dollar Spot Index ended the week down by 0.55% to $98.301.

For the EUR:

It’s also a relatively quiet week ahead on the economic data front.

Industrial production figures on Monday and German and Eurozone economic sentiment figures on Tuesday will influence early in the week.

The Eurozone’s September inflation and industrial production figures due out on Wednesday will also provide direction.

We would expect finalized inflation figures out of France and Italy to have a muted impact on the EUR, however.

With no material stats due out in the latter part of the week, geopolitical risk will remain in focus.

Any talk of U.S tariffs on EU goods and chatter on Brexit ahead of the 19th October EU Summit will also need considering.

The EUR/USD ended the week up by 0.58% to $1.1042.

For the Pound:

It’s another busy week ahead on the economic calendar.

Key stats include employment figures due out on Tuesday, inflation figures on Wednesday and retail sales numbers on Thursday.

On the data front, claimant counts, inflation and retail sales figures will be the key drivers in the week.

On the Brexit front, there would be more upside for the Pound should Johnson finalize a deal ahead of next weekend’s EU Summit.

The GBP/USD ended the week up by 2.73% to $1.2668.

For the Loonie:

It’s a relatively busy week ahead on the data front.

Key stats include September inflation figures due out on Wednesday and August manufacturing sales numbers due out on Thursday.

On the data front, we would expect the inflation figures to be the key driver in the week.

From elsewhere, trade data, industrial production and 3rd quarter GDP numbers out of China will also influence.

The Loonie ended the week up by 0.83% to C$1.3203 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s another relatively quiet week ahead.

Key stats are limited to September’s employment numbers due out on Thursday.

On the monetary policy front, the RBA minutes are due out on Tuesday and could pressure the Aussie Dollar should there be suggestions of more rate cuts to come.

From elsewhere, economic data out of China on Monday and Friday will also influence.

The Aussie Dollar ended the week up by 0.34% to $0.6794.

For the Japanese Yen:

It’s a relatively quiet week ahead on the economic calendar.

Key stats are finalized industrial production figures due out on Tuesday and inflation and trade data on Friday.

We would expect the stats to have a relatively muted impact on the Yen, however.

Geopolitics and economic data out of the U.S and China will likely have the greatest impact in the week.

The Japanese Yen ended the week down by 1.26% to ¥108.29 against the U.S Dollar.

For the Kiwi Dollar:

Stats are on the quieter side in the week ahead.

Economic data is limited to 3rd quarter inflation figures that are due out on Wednesday. We can expect the Kiwi to be particularly sensitive to the numbers.

From elsewhere, stats from China will also influence in the week.

The Kiwi Dollar ended the week up by 0.27% to $0.6337.

Out of China:

It’s a busy week on the economic data front. Economic data includes trade data due out on Monday and inflation figures on Tuesday.

The focus will then shift to a busy Friday. Stats on Friday include fixed asset investment, industrial production and 3rd quarter GDP numbers.

We expect trade data, industrial production, and the GDP numbers to have the greatest impact on market risk sentiment.

The impact of any weak numbers could be buffered, however, by any further positive chatter on trade.

The Yuan ended the week up by 0.83% to CNY7.0892 against the Greenback.

Geo-Politics

Impeachment: With the U.S and China making progress on trade, impeachment chatter could return in the week ahead.

Trade Wars: 15th October U.S tariffs on Chinese goods have been postponed as progress was made last week. For real progress to be made, however, the U.S would need to remove existing tariffs that continue to hurt the Chinese economy. Expect more chatter in the week, which will influence risk sentiment.

UK Politics: Brexit talks continue, with a deal now needed to support further the Pound ahead of the EU Summit. Any suggestions that the latest proposal is inadequate and expect the Pound to slide.

The Rest

Earnings:  It’s a big week ahead, with U.S banks Citi, Goldman, JPMorgan, and Wells Fargo announcing.

EU Summit: It is make or break for Boris Johnson and the Brexiteers. Will there finally be an agreement for the British PM to take back to parliament?

IMF Annual Meeting: Chatter on the global economy and what can be done to drive growth will influence. Will there be any agreements to ramp up fiscal spending to offset the effects of the ongoing U.S – China trade war?

The Weekly Wrap – Progress on Brexit and Trade Delivered in the Week

The Stats

It was a quieter week on the economic calendar in the week ending 11th October.

A total of 44 stats were monitored throughout the week, following 74 stats from the week prior.

Of the 44 stats, 17 came in ahead forecasts, with 22 economic indicators coming up short of forecast. 5 stats were in line with forecasts in the week.

Looking at the numbers, 19 of the stats reflected an upward trend from previous figures. Of the remaining 25, 20 stats reflected a deterioration from previous.

While the economic data was skewed to the negative, the Dollar struggled in the week, as demand for the dollar eased off the back of positive updates from trade talks and Brexit.

The U.S Dollar Index (“DXY”) fell by 0.55% to end the week at $98.301.

Out of the U.S

It was a relatively quiet week on the economic data front. Wholesale inflation figures on Tuesday and September inflation figures on Thursday provided direction early in the week.

wholesale and consumer prices were on the softer side in September, pinning back the greenback.

On Friday, positive Michigan’s consumer expectations and sentiment figures failed to support the Greenback.

Off less influence in the week, were JOLTs job openings, initial jobless claims and import and export price index figures.

Outside of the stats, the FOMC meeting minutes revealed some debate on when to end the current rate path. Rising concerns over the economic outlook suggested that more cuts could be on the way.

The reality was, however, that just 7 of 17 FOMC members foresaw a further rate cut before the year-end.

Downside for the Dollar ultimately came from an easing in geopolitical risk, with most of the damage coming at the end of the week.

In the equity markets, a Friday rebound pulled the majors into the green for the week. The Dow and S&P500 ended the week up by 0.91% and 0.62% respectively, with the NASDAQ up 0.93%.

Out of the UK

It was a busy week on the economic calendar.

Key stats included GDP, industrial and manufacturing production and trade data on Thursday.

While production was on the slide, quarter-on-quarter GDP numbers continued to show the UK economy dodging a recession. The numbers were ultimately Pound positive.

Of less influence in the week were housing sector figures, labor productivity, and retail sales numbers.

While the stats were supportive of the Pound, the upside ultimately came from Brexit news.

Progress towards a possible trade deal, ahead of next week’s EU Summit, drove demand for the Pound.

The Pound ended the week up by 2.73% to $1.2668.

For the FTSE100, a stronger Pound failed to pressure the 100, with the index rising by 1.28%.

Out of the Eurozone

It was particularly quiet week on the economic data front.

Germany’s factory orders and trade data provided little support in the week, with factory orders falling again and the trade deficit narrowing.

On the positive, however, was an unexpected rise in industrial production.

At the end of the week, finalized September inflation figures out of Germany and Spain had a muted impact on the EUR.

On the monetary policy front, the ECB monetary policy meeting minutes also left the EUR unscathed.

The upside in the week ultimately came from positive updates on Brexit and progress on the U.S – China trade talks.

For the week, the EUR rose by 0.58% to $1.1042.

For the European major indexes, the DAX30 rallied by 4.15%, with the EuroStoxx600 and CAC40 up by 3.23% and 3.00% respectively.

Elsewhere

It was another positive week for the Aussie and Kiwi Dollars.

The Aussie Dollar rose by 0.34% to $0.6794, while the Kiwi Dollar gained 0.27% to $0.6337.

For the Aussie Dollar

It was a quiet week for the Aussie Dollar.

Economic data was limited to September’s business confidence and October consumer sentiment figures.

Both business and consumer confidence figures disappointed in the week, pinning back the Aussie Dollar.

Of less influence were home loan figures that continued to reflect improved housing sector conditions.

In spite of the negative bias on the stats, a Friday rally in the Aussie Dollar delivered the gains for the week. Positive updates on trade talks delivered the upside on the day.

For the Kiwi Dollar

The stats were, once more, skewed to the negative in the week.

September’s Business PMI held steady at 48.4, coming up short of a forecast of 49.0. Electronic card retail sales also came up short of forecasts, whilst up by 0.4% in September.

While the stats were skewed to the negative on Friday, a 0.27% gain on the day gave the Kiwi Dollar the upside for the week.

For the Loonie

Through the 1st half of the week, housing sector figures impressed, proving some support.

Employment figures on Friday were the key driver, however, with the unemployment rate falling from 5.7% to 5.5%. A 53k rise in employment, following an 81.1k increase in August, delivered on the day.

Positive updates from trade talks also delivered provided support late in the week, with WTI and Brent gaining 3.58% and 3.54% respectively.

The Loonie ended the week up by 0.83% to C$1.3203 against the Greenback.

For the Japanese Yen

It was a relatively quiet week on the data front. Stats were limited to August household spending figures that came in worse than forecasts.

While the stats were Yen negative, the downside from the Yen came from an easing in geopolitical risk.

Safe-haven demand waned as progress on Brexit negotiations and trade talks spurred demand for riskier assets.

For the week, the Japanese Yen fell by 1.26% to ¥108.29.

Out of China

It was a quiet week on the economic data front.

September’s service sector PMI, which reported slower sector growth, tested risk sentiment on Monday.

A lack of stats through the remainder of the week left updates from the U.S – China trade talks to influence risk sentiment.

The Yuan rose by 0.83% to CNY7.0892 against the Greenback.

US Stock Market Overview – Stock Surge on “Phase 1”, Trade Deal Announcement

US stock prices surged on Friday as markets continued to hear rumblings about a trade deal between the US and China. President Trump met with Chinese negotiators and announced a substantial phase 1 deal which would pare back some of the tariffs on China. Secretary Mnuchin announced that there would be no tariff increase on October 15, which was more than the markets expected. The markets wanted to see that there was progress. All sectors on the S&P 500 index were higher led by Materials and Industrials, Utilities were the worst-performing sector.

The President announced a substantial phase 1, deal and said that once the deal was written the two parties would begin to work on phase 2. Sectors that have exposure to China were the best performers on the S&P 500 index. The VIX volatility index, which measures implied volatility on the S&P 500 index, tumbled 11% as sentiment improved. Import prices came in higher than expected on Friday and consumer sentiment rose.

Import Prices Rose

Import prices in the US rose in September according to the Labor Department. Import prices increased by 0.2% last month. Expectations were for import prices to remain flat month over month. The import data that was released in August was revised to import prices declined by 0.2% instead of the 0.5% decline previously reported. Oil prices increased by 2.3% buoyed import prices. On a year over year basis import prices decreased 1.6%.

Consumer Sentiment Rose

The University of Michigan reported that consumer sentiment rose to a three-month high of 96 this month from 93.2 in September. Expectations had been for consumer sentiment to climb to a level of 92.5. This comes despite a choppy stock market, and trade tariffs that continue to weigh on global economic growth.

The Fed will By Treasury Bills Through Next Year

The Federal Reserve reported that the central bank would buy short-term Treasury debt beginning next week. The Fed will buy Treasury bills at an initial pace of $60 billion a month and continue those purchases into the second quarter of 2020. The Fed said the actions were technical in nature and were not as a way to address monetary policy.

E-mini NASDAQ-100 Index (NQ) Futures Technical Analysis – Strengthens Over 7918.50, Weakens Under 7834.50

December E-mini NASDAQ-100 Index futures are trading sharply higher shortly before the close on Friday. The market has been supported all session by optimism over a potential trade deal between the United States and China after President Donald Trump said that the talks have been going “really well.”

Traders are now waiting to hear from President Trump and Chinese Vice Premier Liu He after their White House meeting which began around 17:45 GMT.

Traders are also responding positively to a report from Bloomberg News that said the two economic powerhouses struck a partial trade deal, adding this could set up a truce on the ongoing U.S.-China trade war. China would agree to some agricultural concessions while the U.S. would agree to some tariff relief.

At 19:16 GMT, December E-mini NASDAQ-100 Index futures are trading 7908.50, up 148.25 or +1.91%.

E-mini NASDAQ-100 Index
Daily December E-mini NASDAQ-100 Index

Daily Technical Analysis

The main trend is up according to the daily swing chart. A trade through 7799.75 changed the main trend to up earlier today. A move through 7583.25 will change the main trend to down.

The short-term range is 7973.75 to 7474.25. Its retracement zone at 7783.00 to 7724.00 is support. Holding above this zone is also helping to generate today’s strong upside bias.

The major support zone is 7624.50 to 7535.00. This zone provided support on Thursday at 7583.25.

Daily Technical Forecast

Based on the early price action and the current price at 7908.50, the direction of the December E-mini NASDAQ-100 Index futures contract into the close is likely to be determined by trader reaction to the downtrending Gann angle at 7918.50.

Bullish Scenario

A sustained move over 7918.50 will indicate the presence of buyers. The next upside target is the downtrending Gann angle at 7960.50. This is the last potential resistance angle before the 7973.75 to 8002.50 main tops.

Bearish Scenario

A sustained move under 7918.50 will indicate the buying is getting weaker or the selling is getting stronger.

The first downside target is a steep uptrending Gann angle at 7858.25. If this fails then look for the selling to extend into the downtrending Gann angle at 7834.50. This is a potential trigger point for an acceleration into the short-term Fibonacci level at 7783.00.

The Fib level at 7783.00 is another trigger point for an acceleration into the short-term 50% level at 7724.00, followed by the uptrending Gann angle at 7666.25.

Trade Deal Optimism, Brexit Breakthrough Boost European Indexes

Strong stock market performances in the U.S. on Thursday and in Asia early Friday carried over to the European session with its major indexes posting solid gains. The catalysts behind the strength are optimism over U.S.-China trade negotiations with investors hoping for at least a partial deal between the two economic powerhouses and positive developments over Brexit.

At 09:47 GMT, the UK’s FTSE is at 7201.55, up 15.19 or +0.21%. Germany’s DAX is trading 12388.55, up 224.35 or +1.84 and France’s CAC is at 5631.71, up 62.66 or 1.13%.

US-China Relations

Besides the carryover strength from the U.S. and Asia, European shares were boosted by comments from President Trump, who characterized high-level trade discussions between the U.S. and China as “very, very good” and plans to meet with Chinese Vice Premier Liu He at the White House on Friday.

On the back of that comment, Alex Wong, director of asset management at Ample Capital, told CNBC’s “Street Signs” on Friday, “The best scenario probably would be just a partial deal, I think.”

Wong furthered added, “I don’t think we (will) see a very strong outcome today.”

Past meetings between Liu and Trump this year have yielded positive progress on trade. For example, after their meeting in January, China increased its soybean buying. And their February meeting resulted in a delay in tariffs.

Positive Developments over Brexit

European shares were also underpinned after positive comments on Brexit from the leaders of the Republic of Ireland and the U.K.

U.K. Prime Minister Boris Johnson met with his Irish counterpart Leo Varadkar for further Brexit talks Thursday afternoon, with subsequent comments encouraging investors to buy shares.

“The Prime Minister (Johnson) and Taoiseach (Varadkar) have a detailed and constructive discussion,” the joint statement said.

“Both continue to believe that a deal is in everybody’s interest. They agreed that they could see a pathway to a possible deal.”

Additionally, Irish Prime Minister Leo Varadkar said a Brexit deal could be clinched by the end of October to allow the U.K. to exit the European Union in and orderly manner.

U.K. Brexit secretary Stephen Barclay is in talks with the EU’s chief Brexit negotiator Michel Barnier on Friday.

Finally, J.P. Morgan said Friday it had lifted its outlook for the chances of a Brexit deal from 5% to 50%.

Asian Shares Boosted by Trade Talk Optimism

The major Asia Pacific stock indexes closed higher on Friday as investors remained optimistic that U.S.-China trade negotiations would end with a positive outcome. The strength was attributed to a tweet by U.S. President Donald Trump that said he is set to meet with Chinese Vice Premier Liu He on Friday.

On Friday, in Japan, the Nikkei 225 Index settled at 21798.87, up 246.89 or +1.15. In Hong Kong, the Hang Seng Index finished at 26308.44, up 600.51 or +2.34% and in South Korea, the KOSPI Index closed at 2044.61, up 16.46 or +0.81%.

Australia’s S&P/ASX 200 settled at 6606.80, up 59.70 or +0.91% and China’s Shanghai Index finished at 2973.66, up 25.95 or +0.88%.

Investors Betting on Positive Trade Developments

Shortly after the U.S. cash market opening on Thursday, President Donald Trump said he’s meeting with Chinese Vice Premier Liu He on Friday, fueling optimism about a positive outcome from this week’s high-level trade talks.

“Big day of negotiations with China. They want to make a deal, but do I? I meet with the Vice Premier tomorrow at The White House,” Trump said in a tweet Thursday.

Trump’s comment about a meeting with Liu contrasted with a report from the South China Morning Post that said the two sides made no progress in deputy-level trade talks this week and Liu will cut his visit short.

You know the drill, investors bought stocks on the news, driving the indexes sharply higher in the U.S., in a move that carried over to the Asian session.

China Carries “Great Sincerity”

Before the markets opened on Thursday, Liu told Chinese state-run media agency Xinhua that China carries “great sincerity” to the talks this week.

“The Chinese side has come with great sincerity and is willing to make serious exchanges with the U.S. on issues of common concern such as trade balance, market access and investor protection, and promote positive progress in the consultations,” Liu said.

Possible Outcomes

“To affirm a temporary trade truce, the second day of trade talks (Friday) will need U.S. President Trump to suspend or cancel the U.S. tariffs that are scheduled to hit on Chinese goods October 15 and December 15,” strategists at Singapore’s DBS Group Research wrote in a note.

Still, in the longer term, the strategists said: “The broader China-US trade war remains unresolved,”

Analysts at J.P. Morgan said in a note they expect four possible scenarios could emerge from the trade negotiations.

First, an “ice-breaking meeting that will lead to a major deal” in the coming months, second, a “mini-deal” focusing on China’s purchase of U.S. products and some structural reforms while new tariffs get postponed indefinitely, third, a no-deal status quo where new tariffs come into play, but negotiations continue, and finally, a break-up scenario, where there’s no deal and no further dialogue between the U.S. and China.

J.P. Morgan analysts said they are expecting a no-deal status quo while “market investors also have high hopes for a mini-deal.”

US Stock Market Overview – Stocks Rally Ahead of Trump/Liu He Meeting

US stocks moved higher on Thursday is driven- St by positive sentiment toward the trade talks that are taking place on Thursday and Friday. The White House announced on Thursday that President Trump said he would meet with a top envoy of Chinese President Xi Jinping and the two sides worked toward an accord aimed at preventing currency manipulation. A larger than expected decline in US jobless claims helped buoy the dollar and yields paving the way for higher stock prices. Most sectors were higher on Thursday led by a gain in Energy and Material, Utilities bucked the trend. During the first 8-trading day of the Q4 only Real-estate is in the green.

Trump Schedule to Meet with Liu He

President Donald Trump announced he would meet with a top envoy of Chinese President Xi Jinping and the two sides worked toward an accord aimed at preventing currency manipulation. The scheduled meeting is expected to be on Friday. Mr. Trump said he would meet with Chinese Vice Premier Liu He at the White House. While it is unlikely that the two sides will reach an agreement on Friday, the news of the meeting help buoy riskier asset and weigh on gold prices. Prior to the talks the White House also approved of licenses for American firms to do business with blacklisted Chinese telecom giant Huawei Technologies.

Jobless Claims Drop More than Expected

The Labor Department on Thursday reported that jobless claims dropped 10,000 to 210,000 for the week ended October 5. Data for the prior week was revised to show 1,000 more applications received than previously reported. Expectations were for claims to remain unchanged at 219,000 in the latest week. Claims had risen for three straight weeks. Some of the increase in claims could have been the result of an ongoing strike by about 50,000 workers at General Motors.

Slack See Daily Active Users Rise

Slack reported on Thursday that its number of daily active users jumped 37% from a year earlier. The maker of the popular workplace chat app said that over 12 million people used the product daily in September, up from more than 10 million as of the quarter. Slack has been under pressure to produce as Microsoft is hot on their heels.

E-mini NASDAQ-100 Index (NQ) Futures Technical Analysis – Trend Changes to Up on Trade Through 7799.75

December E-mini NASDAQ-100 Index futures are trading at their high of the session on Thursday after President Trump said he will meet with Chinese Vice Premier Liu He on Friday, raising hope the two countries could make progress on the trade front. Apple shares are one of the best performers, climbing more than 1%.

At 15:33 GMT, December E-mini NASDAQ-100 Index futures are trading 7781.50, up 82.00 or 1.07%.

In a tweet, Trump said:  “Big day of negotiations with China. They want to make a deal, but do I? I will meet with the Vice Premier tomorrow at The White House.”

E-mini NASDAQ-100 Index
Daily December E-mini NASDAQ-100 Index

Daily Technical Analysis

The main trend is down according to the daily swing chart, however, momentum has been trending higher since the formation of the closing price reversal bottom at 7474.75 on October 3.

A trade through 7799.75 will change the main trend to up.

The major support is the 7624.50 to 7535.00 retracement zone. Today’s low at 7583.25 fell inside this zone.

The short-term range is 7973.75 to 7474.75. Its retracement zone at 7724.00 to 7783.00 is currently being tested. It is controlling the near-term direction of the index.

Daily Technical Forecast

Based on the early price action and the current price at 7781.50, the direction of the December E-mini NASDAQ-100 Index futures contract the rest of the session on Thursday is likely to be determined by trader reaction to the Fibonacci level at 7783.00.

Bullish Scenario

A sustained move over 7783.00 will indicate the presence of buyers. The first target is a steep uptrending Gann angle at 7794.25.

Crossing to the strong side of the uptrending Gann angle at 7794.25 will put the index in a bullish position. Taking out the main top at 7799.75 will change the main trend to up and could trigger a surge into the downtrending Gann angle at 7853.75. This is another potential trigger point for an acceleration into downtrending Gann angles at 7913.75 and 7943.75. The latter is the last potential resistance angle before the 7973.75 main top.

Bearish Scenario

The inability to overcome 7783.00 will signal the return of sellers. If this creates enough downside momentum then look for the selling to possibly extend into 7724.00. This 50% level is a potential trigger point for an acceleration into the uptrending Gann angle at 7634.25.

Asian Shares Finish Higher after Wild Ride

The major Asia Pacific stock indexes went for a wild ride on Thursday before turning higher for the session as investors reacted to two major developments ahead of the start of high level talks between the United States and China.

Early in the session, shares were sent sharply lower after the South China Morning Post reported that high level trade negotiations including Chinese Vice Premier Liu He would be cut to one day. Later, Bloomberg News reported that the U.S. was considering an agreement to suspend next week’s tariff increase in exchange for a currency pact.

At 08:17 GMT, Japan’s Nikkei 225 Index was trading 21551.98, up 95.60 or +0.45%, South Korea’s KOSPI Index was at 2028.15, down 18.10 or -0.88% and Hong Kong’s Hang Seng Index was trading 25700.84, up 18.03 or +0.07%.

In China, the Shanghai Index was trading 2947.71, up 22.85 or +0.78, and in Australia, the S&P/ASX 200 Index finished at 6547.10, up 0.40 or +0.01%.

US and China Make No Progress

Early in the session on Thursday, the major indexes plunged after the South China Morning Post reported that deputy-level trade talks between the United States and China aimed at laying the groundwork for high-level negotiations later this week failed to yield any progress on critical issues, according to two sources with knowledge of the meetings.

During the discussions on Monday and Tuesday in Washington, the Chinese refused to talk about forced technology transfers, and also skirted the issue of state subsidies. Furthermore, Chinese negotiators spent the time focusing on only two areas:  agricultural purchases and intellectual property protection.

“They have made no progress,” said another source familiar with the talks, adding that the Chinese side had not made headway in persuading US negotiators to consider a freeze on tariff increases, a main priority for Beijing.

High-Level Talks May Only Last One Day

The SCMP also reported that the Chinese delegation is planning to leave Washington on Thursday after just one day of principal-level talks, said another source. Beijing’s negotiating team, headed by Vice-Premier Liu He, had previously planned to leave Washington late on Friday, allowing for up to full days of talks.

Markets Rebound on Huawei Concessions Report

After the sharp break early in the session, Asian shares mounted a powerful comeback rally to turn higher for the day after the New York Times reported Wednesday evening stateside that U.S. President Donald Trump’s administration is set to grant licenses that would allow American firms to sell nonsensitive supplies to Huawei.

Earlier this year, the White House banned sales to the Chinese telecommunications giant, citing national security concerns. The ban was subsequently delayed by the administration to allow American firms to make other arrangements.

Fed Minutes: Members Saw Increased Downside Risks to Economy

A quick read of the Fed minutes from its September meeting showed that some Federal Open Market Committee (FOMC) members expressed concern that the financial markets may be expecting more rate cuts than the central bank will deliver.

At its September 17-18 monetary policy meeting, the FOMC approved a quarter-point rate cut, putting the overnight funds rate in a target range of 1.75% to 2%.

The minutes also showed sharp divisions among members about the future path of policy, along with some worry that a market clamoring for easier monetary might be getting ahead of itself. The minutes said that “a few participants” at the September meeting said prices in futures markets “were currently suggesting greater provision of accommodation at coming meetings than they saw as appropriate.”

As of Wednesday’s close, traders were pricing a 93.5% chance of a rate cut at the end of October, following cuts in July and September. The financial markets are also predicting more reductions in 2020.

Because of the potential misunderstanding, “it might become necessary for the Committee to see a better alignment of market expectations regarding the policy rate path with policymakers’ own expectations for that path,” the minutes said.

Debate Over How Far to Extend Rate Cuts

At its September meeting, Federal Reserve officials began debating how far their current interest-rate cutting campaign should extend, even as they agreed to lower rates in response to growing risks to the U.S. economy.

“Participants generally judged that downside risks to the outlook for economic activity had increased somewhat since their July meeting, particularly those stemming from trade policy uncertainty and conditions abroad.”

Future Cuts and Policy Limits Discussed

Several policymakers wanted the FOMC’s statement to signal the limits of the policy easing that Chairman Jerome Powell characterized in July as a “mid-cycle adjustment.”

“Several participants suggested that the committee’s post-meeting statement should provide more clarity about when the recalibration of the level of the policy rate in response to trade uncertainty would likely come to an end,” the minutes said.

Risks to the Economy

At its last policy meeting, members repeatedly expressed concerns about the impact tariffs were having on business activity. They said that while they saw U.S. growth as generally solid, the forecast risks “were tilted to the downside.”

Several members also noted that statistical models designed to gauge the probability of a recession over the medium term had increased notably in recent months.

“Important factors in that assessment were that international trade tensions and foreign economic developments seemed more likely to move in directions that could have significant negative effects on the U.S. economy than to resolve more favorably than assumed,” the minutes said.

“In addition, softness in business investment and manufacturing so far this year was seen as pointing to the possibility of a more substantial slowing in economic growth than the staff projected. The risks to the inflation projection were also viewed as having a downward skew, in part because of the downside risks to the forecast for economic activity,” the summary continued.

Officials also pointed out that “a clearer picture of protracted weakness in investment spending, manufacturing production, and exports had emerged” and members were also watching the yield curve inversion, a reliable indicator that a recession is ahead.