By Samuel Potter
Doubts and data
Chinese officials are casting doubts about reaching a comprehensive long-term trade deal with the U.S. In private conversations with visitors to Beijing and other interlocutors in recent weeks, officials have warned they won’t budge on the thorniest issues and that they remain concerned about President Donald Trump’s impulsive nature. Stocks and U.S. equity futures dropped on the news, which is understandable because as the trade war drags on, the global economic warning signals are mounting. On Thursday a gauge of the outlook for China’s manufacturing sector dropped to the lowest level since February. Spain’s economy settled down into a slower pace of growth, reflecting a broader malaise in the euro area. U.K. consumer confidence slumped to match a six-year low. Hong Kong’s economy contracted sharply as it entered a recession, exceeding economists’ worst estimates of the damage from months of protests. Taiwan was a rare bright spot: its economy grew at the fastest pace since the second quarter of last year.
The morning after
Jerome Powell and the Federal Reserve seem to have successfully walked the line on Wednesday, delivering their third insurance cut of the year while signaling that may be it. It was all very much as expected, and the markets took it in stride. The message that policy makers are in no rush to tighten policy was a minor flourish that sent stocks to another record and gave Treasuries a little boost. The hawkish-but-dovish-but-kind-of-hawkish cut was at odds with the Bank of Japan, which this morning strengthened the wording on its policy pledge on interest rates. It flagged the possibility that they could go lower as the central bank grapples with the effects of a global slowdown and limp inflation. Oh and it’s Mario Draghi’s last day as head of the ECB, so please sign the card in the break room if you get a chance. There will be cake around 3 p.m.
Earnings roll in
Investors are not only digesting the China news, Fed messaging and subsequent deluge of analysis, they also have some pretty big corporate results to chew on, too. After the bell yesterday Facebook Inc. reported revenue for the third quarter that was 1.7% above the average analyst estimate, while Apple Inc. projected fiscal first-quarter revenue that beat analysts’ estimates. This morning BNP Paribas SA posted a third straight gain at its fixed-income trading business, outshining its Wall Street and European peers. Nintendo Co. reported fiscal second-quarter profit that beat analyst estimates. British Airways owner IAG SA reported a drop in third-quarter earnings after the U.K. carrier’s first pilot strike since 1979. Royal Dutch Shell Plc said the worsening economy could slow the pace of returns to shareholders, even as it delivered a strong third-quarter performance. In other corporate news, rival carmakers PSA Group and Fiat Chrysler Automobiles NV unveiled their plan to combine. And Ford Motor Co. reached a tentative agreement with the United Auto Workers union on a new labor contract.
Overnight the MSCI Asia Pacific Index rose 0.4%, with Japan’s Topix index edging higher by 0.1%. In Europe, the Stoxx 600 Index fell 0.7% at 6:07 a.m. Eastern Time as China’s doubts over the prospect of a long-term trade deal reverberated through markets. S&P 500 futures pointed to a drop at the open, the 10-year Treasury yield was at 1.74% and gold rallied above $1,500.
Friday’s jobs data looms large, but before that we have a few other things to get through. The Fed’s preferred inflation metric, the core PCE deflator, will land at 8:30 a.m. alongside personal income and spending numbers and initial jobless claims. Stick around after that for Bloomberg’s consumer comfort reading and the MNI Chicago Business Barometer at 9:45 a.m. If you haven’t had enough earnings, there are more coming. But it’s a somewhat B-list day compared to the rest of the week, with Kraft Heinz Co. (before the open) arguably the standout name.