Markets are waiting for confirmation that the US Fed is raising interest rates again at the meeting in Washington today. Expectations have been solid that they will move to raise rates by 0.25% , but most will be waiting for the discussion about forward projections and the impact that will have on world markets. If the Fed begins to talk about interest rates being close to a neutral level then we may see a reversal in long USD positions and a drop in bond yields .
Investors are a bit shell shocked after a week of trading that has seen continued weakness in equity markets and turmoil in some emerging markets such as Brazil , Argentina and Turkey. High flying US tech stocks which has led the US market higher all year were hit after the US government indicated that they will increase regulations to limit some of the market power. Stocks such as Facebook , Apple and Twitter were sharply lower on the week.
US markets are closed tonight for Labour Day public holiday.
Trade tensions have increased again in the last few days after it was reported that President Trump is keen to increase the tariffs applied to Chinese goods by a further US$200 bn. This would be a serious step in the trade war and China would struggle to retaliate as the US imports are substantially lower than that figure. Market sentiment has fallen with this news and we have seen stock indices begin to fall , the US dollar begin to strengthen and bond yields begin to fall as market fret about lower economic growth.
European stock indices have turned lower in early trade today after strong markets for this week after the sentiment improved with the success of the US/Mexico trade deal and the flow on to Canada Europe and eventually China. It seems likely that the US will deal favourably with both Canada and Europe and then come up against China , which will be a lot harder. The US seems to be trying to change Chinas industrial policy , something on which i believe they will not budge. So I think the US is going to need to focus on another target which is realistic and possible.
European investors are watching a slow day in the markets with Stock Indices up in France , the Uk , and Germany but only slightly and down in Italy by 0.37% . Trade issues were front and centre as the US tariffs of 25% were placed on US$16 bn and the Chinese matched them with tariffs of their own. Trade talks continue between the US and China but they are low level.
Investors remain hopeful that some progress can be made in the trade conflicts that have developed over the past few months. The US disputes with China , the EU , Canada and Mexico continue to roll along with some progress seen this week. A Chinese delegation will meet in the US this week which may improve the sentiment and a deal with Mexico is also seen as happening this week. The US would like to get some of these deals done well before the Mid term elections in November but they do run the risk of running out of time.
European markets continue to be on the defensive after the large scale selling in the Turkish stocks and currency early in the week. Emerging markets around the globe have been in the spotlight with the strong USD and rising US rates continuing to put pressure on any sign of a weak economy. The Turkish market bounced mid week as the central bank placed a limit on how much the local banks can sell the Lira and some investments pledged by Qatar in the Middle East. However this morning we see the TRY back over the 6 level and European banks under selling pressure again.
Risk sentiment has improved today with a bounce in the Turkish Lira after extreme weakness on Monday. Talk of large investment in Turkey by Qatar and news that China and the US will begin fresh talks about the trade issues has stemmed the selling in many risk assets. However after the past two weeks the stock indices in Europe are all in downtrend with todays move not yet enough to turn around the trend.
High volatility continues in European markets after the US markets weakened overnight and then in Asia we saw some strength in the Australian and Japanese markets and continued weakness in China and Hong Kong. The Turkish Lira has regained some strength after the extreme weakness of the past few sessions with an extreme high of 7.2000 on Monday and now a recent low of 6.3300. The threat of contagion and the flow on in the European banks that have lent funds to Turkish corporates has kept the European indices weak with buying of fixed interest bonds as a safe haven.