Trade war escalation fears persist

Market movers today

There are few data releases today and market focus therefore continues to be on a possible escalation of the trade dispute between the US and China. A week has passed since the public hearing period ended for another set of tariffs on USD200bn of imports from China, which makes it possible that the new tariffs could be announced today, if the same pattern is followed as in May, when the last tariffs were announced.
Another key market focus is the situation in emerging markets , where pressure continues to mount in a wider set of countries, which are particularly vulnerable to further escalation in the trade dispute between the two biggest economies in the world.
In Brussels, the European parliament will vote on launching article 7 procedures against Hungary, given concerns about repression of freedom of speech and legal rights of organisation.

Selected market news

Global developed bond market yields rose during Europe' s and in the US sessions supported by strong releases from the NFIB and JOLTS data. US small business optimism rose to the highest level on record (since the mid-1970s). High optimism is generally associated with positive business investment growth and supports our view that the US expansion continues. US equities rallied and the oil price increase fuelled rising yields further. Optimism on a neat Brexit continued ahead of the BoE and ECB meetings.

The Italian budget discussions by Italy' s Finance Minister Giovanni Tria and Deputy Prime Minister Matteo Salvini sounded positive, fortifying latest commentaries about the expectation for a gradual implementation of reforms. Tria stated that the government wants to close the growth gap with the euro area but that deficit spending alone cannot do so.

The oil price continued to surge and Brent hit USD79.65/bbl, its highest since June, as Hurricane Florence advanced and US sanctions started weighing on Iran' s exports. API data revealed shrinking inventories in the US.

US President Donald Trump sounded optimistic on a NAFTA deal, stating that talks were going well. Canada' s Prime Minister Justin Trudeau said that while a good bargain was to be had, no deal was better than a bad one. Canada signalled it is ready for a small concession, allowing limited access to the Canadian dairy market.

Hungary' s Prime Minister Viktor Orban sounded concerned about the EU' s intentions to implement its strictest sanctions against the country for the erosion of democracy, possibly suspending its voting rights. The assembly needs a two-thirds majority to pass the sanctions.

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