LONDON (Reuters) - Another day of vague reports, denials and counter-denials on both the U.S.-China trade talks and the Brexit showdown looms, with little that’s emerged from either so far this week proving to be a game changer yet.
On balance, the nods and winks on the trade talks in Washington have been read as marginally positive – or at least when combined with fairly clear signalling from the Federal Reserve that it’s about to ease policy again later this month. Today’s U.S. consumer price inflation numbers are unlikely to provide any obstacle to that easing if the soft September producer price report seen earlier in the week is any guide.
Perhaps the main mover overnight was a rally in China’s offshore yuan, which strengthened to its best levels in more than two weeks after a Bloomberg report that said U.S. and Chinese officials were reviving a currency pact first mooted earlier this year that stops further tariff hikes in return for commitments to hold the yuan stable. Other reports suggest President Trump will cede some ground on U.S. company dealings with Chinese tech giant Huawei.
On the other hand, there were Chinese press reports that Vice Premier Liu was due to leave the talks a day early and U.S. Commerce Secretary Ross insisted overnight that tariff rises on Chinese goods were working and having the desired effect of drawing trade concessions from Beijing. If there’s not sufficient progress in this week’s talks U.S. tariffs on some $250 billion of Chinese goods rise to 30% from 25% next Tuesday.
Wall St’s S&P500 gained almost 1 percent late on Wednesday, with futures flat first thing on Thursday. Asia’s main bourses were mostly higher, with Shanghai leading the way with gains of 0.7%. Japan’s Nikkei was up 0.5% and Hong Kong rose 0.3%. Seoul’s Kospi bucked the trend and dropped 0.8%.
Even though euro stock futures were up marginally first thing, European markets were digesting another round of dour industrial numbers. German exports fell more than expected in August and French industrial production also surprised with an unexpected drop of 0.9% during the month.
There was also attention on what’s seen as an internal battle brewing within the European Central Bank over whether it should be easing monetary policy even further. The Financial Times reported on Thursday that outgoing ECB chief Draghi ignored advice from the bank's monetary policy committee not to resume bond purchases, shedding light on how divisive the move has proven.
Minutes of the ECB’s latest policy meeting are released later on Thursday. Euro/dollar strengthened above $1.10 first thing. Sterling was more mixed, weakening further against the euro but steady against the dollar.
Much like the U.S.-China trade talks, the Brexit impasse is now the subject of claim and counter-claim, sketchy press reports and denials. UK PM Johnson meets Irish PM Varadkar near Liverpool later on Thursday to see if there’s any chance of a breakthrough that would see a deal by next week’s EU summit.
This week’s compromise proposals from London have effectively been rejected by Brussels. If there’s no deal, Johnson is legally obliged to seek an extension of the Oct 31 Brexit date even though he continues to insist he will not do so.
Elsewhere, Turkey’s lira steadied after sliding to its weakest level since June on Wednesday as Turkish troops launched a military offensive against Kurdish forces in Northern Syria. The lira and Turkish bonds were hit after U.S. Senators unveiled a proposal for sanctions against Turkey for its military operation unless certain conditions were met.
On the European corporate front, Paris stock futures are outperforming after Louis Vuitton owner LVMH's solid Q3 print despite HK unrest. Upbeat results from LVMH are likely to trigger a rally as analysts were largely expecting luxury companies to take a major hit from political protests in HK. LVMH is seen rising 4%, while its rivals Richemont, Swatch, Kering and Hermes are seen up 2%, according to premarket indications from traders.
Dutch health tech company Philips is seen falling 4% to 5% after it said trade tariffs and disappointing results at its Connected Care division would make it impossible to reach its target for profit margin improvement this year.
In other earnings-based moves, UK packaging and paper company Mondi is seen down 3% to 5% after reporting slightly lower sales volumes; Novozymes is called -5% after profit warning; UK's plus-sized fashion retailer N Brown seen up 5% on H1 profit beat.
— A look at the day ahead from EMEA markets editor Mike Dolan. The views expressed are his own —