August 27, 2019 / 7:38 AM / 4 months ago

Daily Briefing: China crisis on the wane?

Traders watch monitors displaying a media conference with U.S. President Donald Trump live at the G7 summit on the trading floor at the New York Stock Exchange, August 26, 2019. REUTERS/Andrew Kelly

LONDON (Reuters) - In theory, good cheer and positivity should prevail on markets this morning, with signs that world stocks will head higher after Monday’s declines and a lacklustre start in Europe.

For one, President Donald Trump has flagged the possibility of a trade deal with China and said he believed Beijing was sincere in its desire to reach an agreement, just days after the two sides slapped additional tariffs on each others’ goods.

Then, profits at China's industrial firms returned to growth in July, helped by public spending. And Italy seems to be on the brink of agreeing a new coalition, averting an autumn election. Talks will resume at 0900 GMT.

The G7 summit too proved less acrimonious overall than feared, with Trump saying  the United States and the EU are "very close to doing a deal" and even agreeing to meet Iran’s President Hassan Rouhani "if the circumstances were correct". 

But the mood is actually less than ebullient. World stocks are up modestly, Asian markets are up 0.3%  after dropping 1.3% the previous day. Shanghai and Seoul rose 1% each and Europe reversed losses on futures and is opening modestly positive.

Benchmark 10-year U.S. Treasury yield pulled back from a three-year low of 1.443% reached on Monday and Italian yields are already down 10 basis points to the lowest since October 2016 at just 1.24%. However there are signs all is not well -- sterling remains under the cosh, having weakened half a percent yesterday as the last vestiges of hope for a Brexit deal seem to be evaporating.

And in a reminder of the trade war that’s still raging, the onshore yuan nudged down to a fresh 11-year low of 7.1566 per dollar, extending its August slide to around 3.6%. The dollar which rose half a percent on Monday, retreated 0.12% while the yen has risen 0.5% in a sign that risk aversion remains.

Yields on German and U.S. debt are down likewise, and the U.S. 2-10 curve remains inverted. The Turkish lira appears to have stabilised after suffering another of those flash crashes which seem to have become increasingly common – it fell on Monday as much as 12% at one point against the yen. EM currencies are lower, with a currency index standing just off 9-month lows.

— A look at the day ahead from Deputy EMEA Markets Editor Sujata Rao. The views expressed are her own —

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