By Laura Curtis
A collective sigh of relief was heard around the world when President Donald Trump decided to delay the imposition of 5% extra tariffs on Chinese goods by two weeks, in deference to the 70th anniversary of the People’s Republic on Oct. 1. In a somewhat retaliatory gesture of goodwill, China is considering allowing companies to resume buying American agricultural products including soybeans and pork, according to people familiar with the situation. That would be a potential boon for farmers in key Trump-supporting states. A little perspective, though, please. While this all might feel like a shift from tit-for-tat tariff hikes to a de-escalation in tensions, another two-week reprieve doesn’t do much to address the schism that remains on fundamental issues — and Trump still has further tariff increases planned.
Mario Draghi faces one of the most contentious policy meetings of his European Central Bank presidency Thursday as he prepares to ramp up monetary stimulus despite some skepticism in Germany, France and the Netherlands. Still, the consensus expectation of economists is for the resumption of a bond-buying program in October in addition to a 10 basis-point reduction in interest rates to minus 0.5%. Lenders will also be watching for the introduction of a tiering system that would exempt banks’ excess reserves from negative charges.
Trump’s tariff delay offered a glimmer of hope for global oil demand, while U.S. crude inventories dropped last week. But just as OPEC and its allies meet in Abu Dhabi, the International Energy Association said the cartel faces a significant challenge in managing the market as the threat of oversupply returns. Meanwhile, Bloomberg News reported that Trump has discussed easing sanctions on Iran to help secure a meeting with President Hassan Rouhani later this month. Any deal that would ease the prohibition on purchases of Iranian oil would likely add to the looming 2020 glut. Meanwhile, deeper production cuts aren’t yet on the agenda in Abu Dhabi after OPEC released its own report highlighting slowing demand growth, rising supplies and the risk of a “relapse” into surplus.
The MSCI Asia Pacific Index rose 0.5% overnight as stocks in Shanghai led the way and Japan’s Topix index jumped 0.7%. In Europe, the Stoxx 600 Index was 0.1% lower by 6:10 a.m. Eastern Time, with tourism and energy shares posting the biggest losses. S&P 500 futures pointed to a modest gain at the open, the 10-year Treasury yield was at 1.726% and gold traded higher.
Investors will be closely watching U.S. inflation data out Thursday as the core consumer-price index is expected to post its biggest annual advance in a year and the broader CPI is forecast to climb 1.8% for the second straight month. If economists’ expectations are right, it may complicate the Federal Reserve’s policy decision next week. And on the other side of the pond, the U.K. government was forced to reveal the full scale of the damage a no-deal Brexit could cause and is due back in court, this time in Belfast, a day after Scottish judges ruled Prime Minister Boris Johnson’s suspension of Parliament was unlawful.