It’s not immediately clear what the restart of US, China trade talks tomorrow will achieve given the deteriorating backdrop to relations between the two powers in the last few days.
The expansion of the US blacklist of Chinese companies as well as the imposition of visa restrictions on Chinese officials connected to the detention and crackdown on Chinese Uigurs in western China has served to up the ante further, particularly since China hasn’t, as yet indicated how it might retaliate. The timing of these escalations is also curious given that they seem designed to make the upcoming talks much more difficult than they need to be, and raise the question as to whether the talks are merely window dressing.
With China yet to retaliate to these recent developments the prospect of any type of deal in the short term is becoming ever more remote, meaning that further tariff escalations are likely to be only a matter of time. As things stand further tariff increases on $250bn of Chinese goods automatically kick in on the 15th October, and this week’s resumption of trade talks don’t look like they will change that.
This rise in geopolitical tensions has unsurprisingly seen markets in the US and Asia come under pressure, though these nerves don’t appear to have translated into a weaker start for markets in Europe which have opened a little bit firmer.
In a more positive development Fed chairman Jay Powell announced that the Federal Reserve would soon resume the purchase of short term treasury bonds in the hope that it will stabilise the move in short term rates that has been a hallmark of the last few weeks, and which saw short term funding rates rise sharply.
In company news GVC Holdings (LON:GVC), owners of Ladbrokes (LON:LCL) Coral has seen its shares rise on the open after the company raised its full year guidance to £670m to £680m, from the previous £650m to £670m, driven by continued growth in its on line business, as net gaming revenue rose 12%. UK retail remains a pressure point due to the cut in maximum stakes in fixed odds betting terminals, which has seen revenues fall 18%, though this was better than expected. The US business has also made an encouraging start.
Shares in Just Eat (LON:JE) are also higher after Takeaway.com reported Q3 orders rose 87% to 41.6m, with order in Germany particularly strong rising 136%. In July Takeaway.com announced that it was merging with Just Eat to create one of the world’s largest on line delivery businesses.
The pound is holding up relatively well despite the rise in the political temperature in the past day or so between London and the rest of the EU. Markets appear to be making the calculation, rightly or wrongly that even if no deal is agreed by the end of the week, or the month, that an extension will happen, and a no deal Brexit avoided, at least in the short term. What happens after that is anybody’s guess, given that most crystal balls as far as Brexit is concerned have proved to be fairly unreliable of late.
With relations so fraught between all parties it would appear that trust on all sides has broken down, making it all the more likely that the only way to break the impasse is to change the players in parliament in the hope that the arithmetic changes sufficiently to drive a deal through.
For all the heat being generated in the past couple of days and all the talk of who will be blamed for a breakdown in talks one important fact has been overlooked. Even if the UK government were able to come back with a deal there is no guarantee that MPs would vote for it, and that more than anything is why the current impasse exists. Until that changes there is unlikely to be any way to unlock the logjam.
As such an election seems the most likely outcome in the event we get the expected extension, and from thereon in, all manner of options come to the fore, from a Johnson win, a Corbyn win or yet another hung parliament.
With European markets treading water just above their closing levels yesterday, US markets also look set to open slightly firmer.
Levi Strauss (NYSE:LEVI) latest Q3 numbers saw a bit of a mixed bag, with a slowdown in the US being offset by decent revenue growth in Europe and Asia markets. Profits fell by 4%, in Q3, however net revenues rose by the same amount, beating expectations by $50m. The slowdown in the US was blamed on a number of one-off factors including problems with the acquisition of a South American distributor.
Dow Jones is expected to open 80 points higher at 26,244
S&P 500 is expected to open 9 points higher at 2,902
DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.
No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.