Trump-Xi Jinping meeting to dominate amid TikTok claims

European equities opened higher on Friday, although the FTSE 100 has started to fade as we close out a hugely busy week for the UK that included inflation, jobs, a BoE rate decision, and historic investment pledges from the US. This morning continued that UK focus, with fresh figures showed UK public sector net borrowing widened to £18.0 billion in August; well above expectations of £12.8 billion. The rise reflected an £8.4 billion jump in government spending, driven by higher costs for public services, benefits, and debt interest. While retail figures came in better-than-expected, the banking sector has provided a particular drag on the FTSE this morning.

The Bank of Japan held its policy rate steady overnight, but surprised markets by outlining plans to begin unwinding its massive equity holdings. This represents a landmark move in the bank’s gradual shift away from ultra-loose policy, with the central bank planning to sell about ¥330 billion in exchange-traded funds annually. While the pace is extremely slow, the announcement underscores a symbolic departure from the aggressive easing of the Abenomics era. Japanese equities slipped on the news, with the Nikkei falling as much as 1.8% before regaining some of those losses to close 0.6% lower.

US stock futures are on the back foot in early trade, as investors have taken on a more cautious stance ahead of a highly anticipated call between President Trump and Chinese President Xi Jinping. Trump has fuelled optimism by suggesting a TikTok deal is close to completion, and even speculated that wider trade discussions between the two largest economies were “pretty close to a deal.” However, he also downplayed expectations for a breakthrough, noting the US may simply extend the current tariff truce, which he described as offering “pretty good terms.” The desire to strike a deal appears to be evident in the fact that Trump has pre-empted the meeting by halting the $400 million military aid package offered to Taiwan. Has the President thrown his Taiwanese allies under the bus in a bid to gain trade concessions with the Chinese? 

The call between Xi Jinping and Donald Trump is scheduled for 9:00 am (ET), with traders likely to be watching the newswires very closely for signs of a significant breakthrough.