Thursday October 10th

10-10-2019

Dow futures slip in wild overnight trading after report that trade talks have stalled

U.S. stock index futures were slightly lower Thursday morning, as investors closely monitor the status of high-level trade talks between the world’s two largest economies. Around 5:50 a.m. ET, Dow futures indicated a negative open of more than 50 points. Futures on the S&P and Nasdaq were marginally lower. Market focus is largely attuned to global trade developments after a slew of conflicting reports around Thursday’s U.S.-China trade talks sent investors for a wild ride. The initial report that hit futures came from the South China Morning Post, which said the U.S. and China made no progress in deputy-level trade talks this week. The report added that higher-level talks with China’s Vice Premier Liu He would now be only one day, with the China delegation planning to leave Washington on Thursday instead of Friday as scheduled. The issue of forced technology transfers, which China refused to put on the table, was the reason talks were at a standstill, SCMP reported. Stock futures later recovered some of those losses after the White House told CNBC’s Kayla Tausche that the SCMP report was inaccurate. “We are not aware of a change in the Vice Premier’s travel plans at this time,” a White House spokesperson told CNBC. And a senior administration official told Tausche that Liu is still scheduled to depart Friday evening, and dinner is on for the delegation Thursday evening in DC. However, a principal in the negotiations later told CNBC the schedule has become “fluid,” with Friday’s session an “open question.” One possibility, according to the source, is Vice Minister Liao Min stays in Washington to continue the negotiations but Vice Premier Liu He would leave early. Another possibility is that talks conclude on Thursday after one day of negotiations. Bloomberg News also reported overnight that the U.S was considering an agreement to suspend next week’s tariff increase in exchange for a currency pact. The New York Times also reported that the Trump administration is grant licenses for some U.S. companies to sell nonsensitive supplies to Huawei. Earlier this year, the White House had banned sales to the Chinese tech giant, citing national security concerns. The administration subsequently delayed the ban to allow U.S. businesses to make other arrangements. “This is the emotional roller coaster that we have to strap in for while these negotiations get hashed out,” Jeff Kilburg, CEO at KKM Financial, said in an email. “The transparency of these negotiations are overwhelming for markets but, I remain optimistic about the outcome.” Tariffs on $250 billion worth of China imports are set to increase to 30% from 25% on Oct. 15 following a two-week delay seen as a goodwill gesture by President Donald Trump. The administration is also scheduled to add a 15% levy on an additional $160 billion worth of Chinese imports on Dec. 15. U.S. consumer prices were unchanged in September and underlying inflation retreated, supporting expectations the Federal Reserve will cut interest rates in October for the third time this year amid risks to the economy from trade tensions. The Labor Department said on Thursday the flat consumer price index last month was the weakest reading since January and came as increases in the cost of food and rents were offset by decreases in the prices of energy and used cars and trucks. The CPI edged up 0.1% in August. In the 12 months through September, the CPI increased 1.7% after advancing by the same margin in August. Economists polled by Reuters had forecast the CPI nudging up 0.1% in September and rising 1.8% on a year-on-year basis. In corporate news, Delta Air Lines will publish its latest quarterly results before the opening bell. Earlier in the week, the Department of Commerce added 28 new Chinese companies and agencies to a “blacklist.” The move soured the tone of the lower-level talks, which were meant to set the table for an actual trade agreement later in the week. Tom Block, Fundstrat Washington research strategist, said the latest affront to China was the U.S. imposition of visa restrictions on some officials believed to be involved in the detention and human rights abuses of Uighur Muslims and other minority groups. China reportedly plans to follow the move by restricting visas for Americans it perceives to have ties with anti-China groups. Block said the U.S. made two strategic missteps this week, with the blacklisting of companies and also the visas, and that will make a deal harder to achieve. “I think it looks less likely every time we take a unilateral action against China,” said Block. The South China Morning Post had reported earlier in the week that optimism about the talks was dimming on China’s side. The paper is owned by Alibaba and is often criticized for reports seen as favoring the Chinese government. Major Asian stock markets recovered from earlier lows to close higher on Thursday as investors watched for developments on the U.S.-China trade front ahead of high-level negotiations between the two economic powerhouses. Mainland Chinese stocks rose on the day, with the Shanghai composite up 0.78% to around 2,947.71 and the Shenzhen component gaining 1.38% to 9,638.10. The Shenzhen composite also advanced 1.413% to approximately 1,631.84. Meanwhile, Hong Kong’s Hang Seng index was about 0.3% higher, as of its final hour of trading. Elsewhere, the Nikkei 225 in Japan rose 0.45% to close at 21,551.98. The Topix index finished its trading day little changed at 1,581.42. In South Korea, however, the Kospi shed 0.88% to close at 2,028.15. Markets in Taiwan were closed on Thursday for a holiday. Oil prices dipped on Thursday as the U.S.-China trade war continued to cloud prospects for the global economy and fuel demand despite a resumption in talks seeking a resolution to the 15-month conflict. The dispute has disrupted global supply chains and slowed growth in the world’s two largest economies, curbing fuel consumption in both. China, the world’s biggest oil importer, has lowered expectations of a deal from the talks on Thursday and Friday. U.S. President Donald Trump, meanwhile, has proposed to increase tariffs on about $250 billion of Chinese goods to 30% from 25% on Oct. 15 if there are no signs of progress. Global benchmark Brent crude futures fell by 37 cents, or 0.6%, to $57.95 a barrel at 0931 GMT. U.S. West Texas Intermediate futures were down 26 cents, or 0.5%, at $52.33. Gold edged higher supported by safe-haven demand amid mixed signals over prospects for U.S.-China trade talks set to begin in Washington on Thursday. Spot gold was up 0.2% at $1,507.49 per ounce, at 0925 GMT, having hit a one-week peak of $1,516.77 early in the session. U.S. gold futures were flat at 1513.20.