The much talked about trade talks between the US and China will kick off today. 

Yesterday we heard that China are interested in brokering a partial trade deal, which helped stocks in Europe as well as the US. The positive signals from China are all well and good, but hopes aren’t too high as certain topics are not up for discussion as far as China are concerned.

Washington DC are not keen on China’s industrial policy or the government subsidies, but Being are not willing to compromise on those topics so major progress is unlikely. China requested that the US don’t impose tariffs later this month or in December as they are scheduled to do so, in exchange for an increase of agricultural purchases by Chinese firms. The Trump administration is keen to strike a broader trade deal, but if a small bit of progress is made in the next couple of days, it might just be a small component of the overall process.

Changing the trading relationship with China is a crucial part of Trump’s plan. Just getting Chinese companies to boost their imports of things like soybean plus pork isn’t going to cut it for Mr Trump. Concerns about national security in addition to intellectual property rights are the major issues for the US, and these are likely to be the longer-term sticking points.

Trading in stock markets in Asia overnight was volatile as a number of stories relating to the US-China trade situation were doing the rounds. There was talk the Trump administration may offer concessions in relation to Huawei. The White House denied a report that China’s Liu He will cut his trip short. There was a report saying the US were considering suspending next week’s tariffs increase if a currency pact with China can be reached – which stabilised stocks.    

The Fed minutes showed that central bankers continue to be concerned about the US-China trade war. The fact that inflation is below their 2% target is a worry too. There is a feeling the markets are getting ahead of themselves, and that dealers are factoring in more rate cuts than the central bank wants to deliver.   

The JOLTS update showed there were 7.05 jobs opening in August. The July reading was revised lower to 7.17 million from 7.21 million. The slight drop off in jobs opening could be a sign the US economy is cooling, or it could be a sign that the market is near full-employment. Either way, the jobs market is still healthy.

The latest Energy Information Administration report showed that US oil stockpiles increased by 2.92 million barrels, while traders were only expecting a build of 1.41 million barrels. On the other hand, the gasoline stockpiles dropped by 1.21 million barrels. The oil market traded higher yesterday afternoon on the back of military action in Syria, plus, unrest in Ecuador caused production to fall.

Brexit remains a mystery as ever, and yesterday we heard from the EU’s Michel Barnier, who said the proposals from Prime Minister Johnson were unacceptable. Mr Barnier claimed it will be ‘difficult but possible’ to strike a deal – which echoed Ireland Simon Coveney on Tuesday. Amid the talks, there is a lot of talk of hope, but no progress, so sterling is lacklustre.

At 9,30am (UK time), the UK will reveal a number of economic reports. GDP on a month-on-month basis is tipped to be 0.0%, which would be a drop from the 0.3% registered in July. Industrial output, manufacturing output and construction output are tipped to be -0.1%, 0.0% and -0.4% respectively. The goods trade balance deficit is expected to be £10 billion.

US CPI is expected to tick up to 1.8% from 1.7%, while the core reading is tipped to hold steady at 2.4%. The inflation readings will give us an indication of demand, and keep in mind we saw some disappointing economic reports from the US last week.                   

EUR/USD – remains in the wider bearish trend, and if the negative move continues it might target 1.0800. A snap back might encounter resistance in the 1.1100 area.  

GBP/USD – has been pushing lower for over two weeks, and if it holds below the 50-day moving average at 1.2254 could pave the way for 1.2000 to be retested. A move to the upside side might bring 1.2400 into play.   

EUR/GBP – while it holds above the 200-day moving average at 0.8832 the outlook should remain bullish, and 0.9100 might act as resistance. A break below 0.8786, might put 0.8724 on the radar. 

USD/JPY – since mid-September it has turned lower, and a break below 106.48 could pave the way for 106.00 to be retested. 108.47 might act as resistance to a positive move.      

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