US markets set to consolidate gains
TRADE TALKS WITH CHINA LIKELY TO MAINTAIN POSITIVE MOMENTUM OF THE LAST WEEK AHEAD OF MIDTERMS
US markets are likely maintain their positive momentum going into the midterm election week, all thanks to US-China trade talks.
US President Donald Trump and Chinese President Xi Jinping were closer to a breakthrough on trade talks after an initial round of duty hikes on imported items from both countries.
However, Larry Kudlow, Trump’s top economic adviser, is reported to have told a channel that the administration hasn’t been working on a trade plan with China.
Both leaders are scheduled to meet on the sidelines of the G20 meeting in Argentina.
“Earlier this week, the US president threatened to apply tariffs on all remaining Chinese imports but then a phone call, the first in six months, between the two leaders suddenly lifted expectations that a solution could be found,” Ole Hansen, head of commodity strategy at Saxo Bank, said.
“We would strongly suggest that this is nothing more than theatre designed to boost the market ahead of next Tuesday’s midterm elections.”
The midterms start tomorrow. The Dow Jones Industrial Average snapped a two-day streak ■ on Friday, closing 0.43 per cent lower at 25,270.83. Prior to this, the index had risen 2.36 per cent last week.
The S&P 500 index closed 0.63 per cent lower at 2,723.06 on Friday, after gaining 2.42 per cent over the past week.
“Global markets will remain very sensitive to any new headlines over eased potential trade tensions, while investors also need to prepare and monitor possible risks with the US midterm elections next week,” Jameel Ahmad, global head of Currency Strategy and Market Research at FXTM, said.
Snapping up bonds
Some of the investors are ploughing money into bonds while some sit on cash, according to Andrew Milligan, head of Global Strategy at Aberdeen Standard.
“Some money is flowing back into bonds, not much though as yields are only at the same levels as late September,” Milligan said. “It is difficult to be very overweight bonds when most investors still think the US Federal Reserve will keep tightening interest rates into 2019. Some money is simply flowing back into cash, although surveys suggest holdings are already above average.”
The Fed is expected to continue to hike rates in the backdrop of better-than-expected jobs and growth data, pointing to sustained recovery in the world’s largest economy.
The Fed has hiked rates three times this year to 2-2.50 per cent, and analysts expect two more hikes between now and next month.
Investors “face a fork in the road” situation, Milligan said.
“If they agree with our view that a global recession is still some quarters or even years away, then this correction is a buying opportunity, especially for beaten down stocks, sectors and markets,” he added.
slide in the S&P 500 on Friday to close at 2,723.06