Hazy US-China Trade Talks Dampen Market Mood

Globally markets slipped on Wednesday as investors grew more cautious about the chances of progress in China-US trade talks, and looked for direction from the ECB. The overall mood was wary due to slower Chinese economic activity, a softer global outlook, Brexit issues, and the US government shutdown.

“The markets appear to be trading a bit cautious ahead of tomorrow’s monetary policy decision from the European Central Bank (ECB) and as US/China trade worries are flaring up,” the Charles Schwab brokerage said.

A report by the Financial Times and CNBC that Washington had snubbed Beijing’s offer of preparatory discussions ahead of the next round of high-level negotiations, weighed on trader’s minds. Gains on Wall Street marked the open on Wednesday, but the Dow Jones then went flat while the tech-heavy Nasdaq gave up 0.5 per cent in midday trading.

“We are continuing to see caution in the markets on Wednesday, with reports a day earlier regarding trade talks between the US and China only aiding that,” said Oanda analyst Craig Erlam.

“Reports that preparatory talks between the US and China ahead of a meeting at the end of the month had been cancelled put a slight dampener on the mood.”

The White House denied the reports, but they followed one by Bloomberg News that said the two sides were struggling to reach a compromise on the crucial matter of intellectual property, the main source of US anger.

Data showing China’s economy grew at its weakest pace in three decades have fuelled fears it is heading for a rocky patch, and even Xi Jinping seemed concerned about the effects of a slowdown in a speech to top provincial leaders this week.

“Investors obviously are still a little bit edgy and therefore we would expect periods of volatility to continue,” said Mark Hackett, chief of investment research at Nationwide Funds Group.

In Europe, a cloudy economic outlook led analysts to speculate on how ECB chief Mario Draghi will frame the picture at a press conference on Thursday.

“Although risks to the outlook have increased it is possible that the ECB chooses only to acknowledge the softer data while pointing to one off-factors (car emissions issues and yellow jackets protests) that are currently blurring the outlook,” said Robert Sierra, head of the Fitch Ratings’ economics team.