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Good morning. The trade war rhetoric between the U.S. and China continues to bite, there’s pessimism about a Brexit deal and the debate about the yield curve goes on. Here’s what’s moving markets. 

Trade Talks

Chinese trade negotiators will travel to Washington for high-level talks on Thursday and Friday, leaving at least one more day for markets to ponder how the talks will turn out and whether the cracks showing in the stock rally are real. It's possible the sell-off sparked by President Donald Trump’s tariff threats won’t be bad enough to force a rethink, giving him a green light to impose the new levies. Still, the machines don't like what they see, volatility markets are flashing warning signs, and it would seem the tariffs are having the opposite effect to the one Trump intends.

Fading Hopes

U.K. Prime Minister Theresa May's team is said to be pessimistic about getting a deal done with the Labour Party, shifting the debate into yet more uncertain territory. If there’s no common ground to be found, talk will turn once again to the various plan B options. Too bad for the pound, which had been in a pretty optimistic mood. In Europe, European Commission President Jean-Claude Juncker is looking back nostalgically and wishing he’d intervened in the Brexit referendum back in 2016.

Yield Curve

A part of the U.S. Treasury yield curve considered a good indicator for coming recession is heading towards a potentially worrying level again, driven by the renewed jitters about U.S.-China trade. But it's doing it at a time when BlackRock Inc. thinks the predictive powers of the yield curve are fading. The Federal Reserve doesn't seem too worried either. Vice-Chairman Richard Clarida pushed back against suggestions the Fed will start to cut rates soon and is confident current policy will get inflation where it needs to be.

Slide Restarts

Markets dropped again as Asia followed the rout seen in U.S. stocks and after Chinese exports unexpectedly fell in April. Oil is getting caught up in the storm, with Brent briefly slipping below the $70 a barrel mark as investors fret about the damage tariffs will do to the economy. Plenty of corporate news to take in too. German conglomerate Siemens AG is carving out its energy unit and slashing jobs in a huge overhaul, while ride-sharing firm Lyft Inc.’s first set of results as a public company showed strong growth and big losses.

Coming Up...

German industrial production data is due and Brazil’s central bank will announce its latest interest rate decision. South Africans go the polls with eyes on what the margin of victory will be for the ANC and whether it’ll give the party the mandate to start making the kind of reforms markets want to see. The election results will be known by the weekend. And note too that New Zealand’s central bank cut rates to a historic low, the first developed market economy to ease policy in the current cycle.

What We’ve Been Reading

This is what’s caught our eye over the past 24 hours.

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