Jerome Powell, chairman of the U.S. Federal Reserve, speaks during a news conference following a meeting in Washington, D.C., U.S. (Photographer: Andrew Harrer/Bloomberg)

Five Things You Need to Know to Start Your Day

(Bloomberg) --

The U.S. and China are back at the negotiating table. The Fed signals it’s ready to raise interest rates. And the fallout from the Michael Cohen verdict continues. Here are some of the things people in markets are talking about.

U.S., China Restart Trade Talks

The revival of trade negotiations between the U.S. and China after a months-long standstill has provoked new hopes in financial markets that an all-out trade war may be averted. Yet this week’s gathering in Washington may also highlight the continuing divide inside the Trump administration over how best to deal with Beijing and how China hawks are winning that battle. U.S. Treasury Undersecretary for International Affairs David Malpass and Chinese Vice Commerce Minister Wang Shouwen are meeting for the first face-to-face trade discussions since June. Hanging over the meetings will be the next round of tariffs on $16 billion of each nation’s exports to the other, which are set to take effect Thursday. The talks between the mid-level officials aren’t expected to draw in senior decision-makers and are predicted only to result in a joint statement of productive discussions, according to a person familiar.

Fed Ready to Hike Rates Again

U.S. central bankers are ready to raise interest rates again so long as the economy stays healthy, according to a record of the Federal Reserve’s most recent policy meeting. “Many participants suggested that if incoming data continued to support their current economic outlook, it would likely soon be appropriate to take another step in removing policy accommodation,” minutes of the July 31-Aug. 1 Federal Open Market Committee meeting released Wednesday in Washington said. The minutes said that “further gradual increases” in their target rate “would be consistent with a sustained expansion of economic activity, strong labor market conditions and inflation near the committee’s symmetric 2 percent objective over the medium term.” Separately, White House press secretary Sarah Sanders said she isn’t aware of any conversations about interest rates between Donald Trump and Jerome Powell despite the president’s criticism of increases under the Fed chairman.

BOJ Credibility in Question

The Bank of Japan’s words are diverging further from its actions and the erosion of its credibility could end up hurting the central bank, according to Kunio Okina, a former BOJ official. Okina says he was among BOJ watchers who weren’t convinced by the central bank’s claim last month that the introduction of forward guidance strengthened its commitment to its stimulus program, as it took small steps toward normalizing  policy. “The direction is toward stealth tapering,” Okina said in an interview. A loss of credibility could make it more difficult for the BOJ to bring about the desired results from its monetary policy, including by inviting misinterpretation by investors. At its meeting in late July, the BOJ approved a number of changes many saw as small moves toward normalization: letting bond yields trade a bit higher, halving the amount of reserves the negative rate applies to and conducting equity purchases with more flexibility. Yet it also said its introduction of forward guidance strengthened its commitment to achieving 2 percent inflation.

Cohen Fallout Continues

Trump’s former personal lawyer, Michael Cohen, has " knowledge" about computer hacking and collusion that may interest Special Counsel Robert Mueller in his investigation into Russian interference in the 2016 election, Cohen’s lawyer said. One day after Cohen pleaded guilty to illegal campaign finance charges over hush money paid to a porn actress and a former Playboy model -- all but naming Trump as having ordered him to do it -- Cohen’s lawyer said Wednesday he would be happy to share the information with the special counsel or Congress. Trump denied using campaign funds as hush money Wednesday, telling Fox News that he only learned of the payments “later on.” Meanwhile questions swirled about whether Trump would pardon Paul Manafort, the president’s former campaign chairman convicted Tuesday of tax and bank fraud.

America, the Next Currency Manipulator?

It’s a label more frequently slapped on developing export economies and one that Trump took up just this week to browbeat China and Europe in his increasingly pitched trade war. But as outlandish as it sounds, some Wall Street observers say the possibility that Trump himself will launch a sustained campaign to weaken the dollar as a way to reduce the U.S. trade deficit can’t be dismissed. “The trade debate will increasingly include the currency issues,” said Charles Dallara, a former U.S. Treasury official. “It’s inevitable.” Granted, Dallara didn’t specifically use the word manipulation; they prefer to refer to it as foreign-exchange intervention. Semantics aside, a shift to a more protectionist and interventionist policy, à la 1985, would not only reverberate across the $5.1 trillion-a-day currency market and undermine the dollar’s status as the world’s reserve currency, but could also weaken demand for U.S. assets.

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