Expecting little out of US-China trade talks

Updates on US-China trade keeps its grip on markets as we await the commencement of trade talks going into Thursday. South China Morning Post’s latest report stated that no progress had been made in deputy level talks and that US-China trade talks are only expected to last for a day once again, dampening sentiment with regards to this key concern for markets. The takeaway from the conflicting messages perhaps remains the fact that there lacks a middle ground between the two sides and even if any interim deal should be agreed upon, it may be built on fragile relations.

Two way risks for markets persist when it comes to risk assets going into events such as US-China trade talks. That said, the expectations of limited progress keep the bias towards a risk-off tone for markets. USD/JPY (大口） may be the best to capture the moves amid such a situation with prices being capped by the $107.43 resistance at present and a break on the downside at $106.74, one to trigger further selling.

Source: IG Charts

Fed minutes

Notably, greenback strength, assessed through the US dollar index which is measured against six major currencies, were seen little changed despite the abovementioned development. Limited reactions had likewise been noted towards the release of September’s Federal Open Market Committee (FOMC) minutes which reflected concerns from Fed members that the market may be anticipating more cuts than would be delivered. That said, it perhaps comes as no surprise given fresh comments from Fed Powell whereby attention had been paid to the risks faced by the economy, continuing to build the expectation for an October move. Look to the series of data including the likes of September’s CPI and Friday’s University of Michigan consumer sentiment updates which are expected to have a greater sway.

Asia open

The conflicting updates on US-China trade can be seen whipsawing early movers with the likes of the ASX 200 and the Japan 225 joining US futures in red. The lack of clarity and the approaching of the trade talks could keep Asia markets sensitive towards any updates. As said above, the bias is towards a risk-off tone on the US-China trade meeting that could cap upsides even if positive news arrives ahead of the talks itself.

For the day ahead, look to a slew of data releases ahead of the US-China meeting commencement. China’s loan conditions may be expected ahead of UK’s GDP and US CPI releases.

Yesterday: S&P 500 +0.91%; DJIA +0.70%; DAX +1.04%; FTSE +0.33%