Five Things You Need to Know to Start Your Day

(Bloomberg) --   

 U.S. and China may be ready to talk, Trump disrupts NATO unity, and traders see an end to the Fed’s hiking cycle. Here are some of the things people in markets are talking about today.

It’s good to talk

Beijing and Washington sought to defuse an escalating trade war after the Trump administration released the biggest list yet of Chinese goods it may hit with tariff increases. China’s Vice Minister of Commerce Wang Shouwen said “when we have a trade problem, we should talk about it”  -- alongside fresh threats of retaliation. The move back to the bargaining table matches some willingness from the Trump team to resume talks, according to a person familiar with the administration’s thinking. Both nations stand to lose by erecting barriers. Morgan Stanley estimates that if the U.S. goes ahead with threatened tariffs on  $250 billion worth of imported Chinese goods, the hit to American growth would be around 0.3 to 0.4 percentage point and, for China, it could constitute a drag of 0.3 percentage point.

Show of disunity

Far from the staid affairs of the past, the NATO summit has made for viewing akin to the drama of a dysfunctional family on a reality TV show.  After suggesting other Western nations double their arms budgets to 4 percent of gross domestic product, Donald Trump had to allay concerns about America’s commitment to the generations-old defense pact after a report he wanted to walk away unless partners "immediately" increase spending. The U.S. president caused ripples with a vehement on-camera breakfast attack on Germany, saying its purchases of Russian gas mean “Germany is totally controlled by Russia.” An earlier comment that the nation is  “captive’’  to Moscow provoked an uncharacteristically personal response from German Chancellor Angela Merkel. She reminded Trump that she knew what captive means, having grown up in Soviet-controlled East Germany.  Next, the former TV personality heads to the U.K. His travels will take him to Blenheim Palace to discuss post-Brexit trade with business leaders, to countryside retreat Chequers with Theresa May, and to Windsor Castle and afternoon tea with the Queen.

Divergent thinking 

The big data print of the week will be U.S. consumer price numbers, due out at 8:30 a.m. The report for June is forecast to show an index gain of 0.2 percent for the month and 2.9 percent from a year earlier, following a big jump in May. It comes at a critical time for the markets. On the one hand, eurodollar contracts are calling time on the Federal Reserve’s tightening cycle, signaling slightly higher expectations among short-end traders for policy easing between December 2019 and December 2020 than for tightening. On the other, the latest data show speculators have record bets against 10-year notes, implying they expect yields to rise. Someone has to be right, and the direction of inflation could be a major clue.

Markets recover

Overnight, the MSCI Asia Pacific Index halted two days of losses, while Japan’s Topix index closed 0.5 percent higher. China’s Shanghai Composite Index climbed 2.2 percent. In Europe, the Stoxx 600 Index added 0.4 percent, and the euro eked out a gain. S&P 500 futures pointed to a higher open, the 10-year Treasury yield was at 2.86 percent and gold rose.

M&A A-OK

Comcast Corp. increased its takeover bid for Sky Plc to $34 billion, topping an offer from Rupert Murdoch’s 21st Century Fox Inc. The move is the latest twist in a surge of M&A that finds media giants in a pitched battle to fend off powerful digital rivals. Meanwhile, Broadcom Inc. has splurged into a new realm of electronics with a planned $18.9 billion purchase of corporate software maker CA Technologies, unveiled late Wednesday, with the rationale for the bid leaving some analysts flummoxed. 

What we’ve been reading

This is what caught our eye over the last 24 hours.

  • Greece becomes hot bond-market destination.
  • Papa John chairman resigns following racist comments.
  • Text-addicted parents are driving and dangerous.
  • Electric cars seen straining U.K. power grid.
  • A high street in the English midlands becomes a near ghost town.
  • France woos children that Brexit leaves behind.

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