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The Dow snapped a three-day winning streak overnight as hopes of a trade deal between US and China at the G20 summit faded, overshadowing more signs of a dovish Fed.
Whilst minutes from September’s FOMC kept expectations for a December hike alive and kicking, they added to expectations that interest rates were close to neutral; an expectation that Jerome Powell fuelled in a speech earlier in the week. However, any positives for stocks was overshadowed by the start of the G20 Summit in Buenos Aires.
Manufacturing activity in China stalled in November for the first time in over two years, fuelling hopes that China would put more economic support on the table. These hopes have helped lift European futures ahead of the open. The Chinese manufacturing PMI was always going to be a closely watched stat just ahead of the G20 kicking off today. With trade tensions front and centre of investors’ mindset as Trump and President Xi are set to meet, a signal of progress between the two powers could kick-start the Santa rally.
Cautious trade was evident in Asian markets overnight, as investors focused on Trump and President Xi. A meeting between the two has been labelled as crucial for progress in easing trade tensions before Trump raises tariffs to 25% on some Chinese imports, up from the current rate of 10%. Mixed signals from the White House heading into the G20 has meant that traders are keen for clarification as to the next steps. With rumours that trade advisor Peter Navarro is attending the expectations of a positive outcome are low.
Eurozone Inflation Data
After gains in the previous session, the euro was trading flat versus the dollar ahead of Eurozone inflation data this morning. Inflation in the region is expected to have ticked lower in November to 2%, down from 2.2% the month previous. Core inflation, which excludes more volatile items such as food and fuel is expected to remain constant at 1.1%. Inflation for the eurozone comes hot on the heels of weaker than forecast German inflation, which doesn’t bode well for today’s reading.
Traders are already slightly nervous over ECB’s ability to tighten monetary policy given the slowing growth momentum in the region. However, Draghi did say that high inflation was keeping the central bank on track to end the asset purchase programme in December. The fear is that if economic if growth is slowing and we see inflation weakening, the central bank could consider taking a leaf out of the Fed’s book and consider easing back on any policy tightening.