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Good morning. The U.S.-China trade talks are imperiled by a couple of presidential tweets, a Brexit compromise seems to be taking shape and oil prices are under pressure. Here’s what’s moving markets.
Chinese equity markets, U.S. futures and the yuan slumped overnight as trade negotiations hit a wall. At issue: Two tweets from President Donald Trump warning that he may raise tariffs on Chinese goods and that the talks have been going too slowly for his liking. (He also praised his steel tariffs in the face of Republican opposition.) China now is considering delaying a trip by its top negotiators to Washington this week, according to people familiar with the matter. The talks, if they happen, come ahead of a crucial inflation report Friday in the U.S., as traders focus on whether Federal Reserve Chairman Jerome Powell is accurate in saying the factors behind inflationary weakness are “transitory." It’s no surprise that stock-index futures in Europe are pointing to a lower open.
The U.K. is closed for a holiday but there’s plenty percolating for the week ahead. After both major parties were battered in local elections, punished for the mess over the Brexit negotiations and the lack of a clear vision on the way forward, the Conservatives and Labour seem to have been given some impetus and are said to be closing in on a compromise over the customs union. Theresa May even took to the Sunday newspaper op-ed pages to call for Corbyn to agree to a deal.
You can count the oil market as another victim of the Trump trade tweets. Brent and WTI futures both fell sharply overnight as the trade spat threatened the world’s two largest economies. Saudi Arabia also cut prices for crude to the U.S. But keep an eye on mounting tensions: The U.S. said it’s sending an aircraft carrier strike group and bomber force to the Middle East to send a message to Iran, citing “a number of troubling and escalatory indications and warnings” it suggested were linked to Tehran. The move was accompanied by tough words from National Security Advisor John Bolton. For now, economic and supply issues are pushing prices lower, but that could change quickly.
With the public holiday in the U.K., today’s earnings schedule is light, with just a relative handful of small- and mid-cap companies, notably in Germany and France. But traders will be preparing for a brisk rest of the week, with AB InBev, BMW and EssilorLuxottica on the schedule tomorrow, Siemens set for Wednesday and Deutsche Telekom and Telefonica due later in the week. Strategists at Barclays note that earnings per share are widely beating predictions, though sales are growing at a slower pace, implying some margin pressure.
U.S. Secretary of State Mike Pompeo will arrive on European shores, starting in Finland before going on to meet leaders in Germany and the U.K. That’ll follow a busy weekend of diplomacy for him involving Venezuela and North Korea. Euro area services PMI numbers are due as the debate about the health of the region’s economy continues apace. And a bunch of central bankers will be speaking from the European Central Bank, the Federal Reserve and the Bank of Canada.
What We’ve Been Reading
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