By Mike Dolan
-What matters in U.S. and global markets today
By Mike Dolan, Editor-At-Large, Finance and Markets
The stories driving markets appear to be moving in loops faster than investors can make significant adjustments, with Friday’s dramatic China trade threats seemingly reversed by Sunday and the French Prime Minister who resigned last Monday now reappointed and forming another cabinet.
Wall Street plummeted almost 3% and gold surged again on Friday after President Donald Trump lambasted China’s latest rare earth export curbs and vowed to slap 100% tariffs on Beijing, sending the S&P 500 to its worst weekly loss since May. However, futures regained about half of that daily percentage loss before Monday’s bell after Trump on Sunday appeared to row back on the move saying, “Highly respected President Xi just had a bad moment. The U.S.A. wants to help China, not hurt it.”
Trade Representative Jamison Greer said tensions rose after Washington reached out to China for a phone call following last week’s announcement of expanded rare earths export curbs, only for Beijing to defer. What’s not clear is what the latest spat means for rolling over the existing bilateral trade deal on November 10 or whether an expected Trump-Xi summit will now take place.
Meantime, China said export growth bounced back more than forecast in September while it rekindled lost U.S. trade elsewhere. Exports to the U.S. fell by 27% year-on-year but shipments bound for the European Union, Southeast Asia and Africa grew by 14%, 16% and 56% respectively.
The full fallout from the weekend’s whiplash will be difficult to parse with the U.S. government still in shutdown, the Columbus Day holiday closing the Treasury market and stock markets bracing for the onset of the U.S. corporate earnings season from tomorrow. Two and 10-year Treasury yields plunged to their lowest in almost a month on Friday’s jolt and the dollar recoiled – but the latter has regained some ground on Monday.
With the IMF/World Bank meetings taking place in Washington this week and a closely watched appearance from Federal Reserve chief Jerome Powell due on Tuesday, there was continued warnings about overextended market valuations and the risks of a sharp correction. “Valuations could now be at odds with the uncertain economic and geopolitical outlook, leaving markets susceptible to a disorderly adjustment,” Financial Stability Board Chair Andrew Bailey told G20 ministers in a letter.
In today’s column, I discuss how “juiced-out” bonds may be pushing money elsewhere.
Today’s Market Minute
Chart of the day
Trade Representative Jamison Greer said on Sunday that the U.S. reached out to China for a phone call following an announcement that it was expanding its rare earths export controls but Beijing deferred, while China accused the U.S. of what it called “double standards.” China’s choke on rare earths and magnets, where its near-monopoly position gives it significant leverage in the trade war, could paralyse global supply chains in industries from autos to green energy and aircraft.
Today’s events to watch
* World financial leaders gather for the IMF-World Bank Annual Meetings, speakers on Monday include European Central Bank President Christine Lagarde
* Philadelphia Federal Reserve President Anna Paulson speaks; Bank of England policymakers Catherine Mann and Megan Greene speak
* US corporate earnings: Fastenal
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(By Mike Dolan; Editing by)
