China Slumps On Trade Worry, EU Up On Growth Outlook, US Market Braces For G-20

Asian Markets Were Mixed Following The US Rebound

Asian markets were mixed despite a 2.5% advance in US stocks. The move in US equities was driven by remarks from Fed Chief Jerome Powell, remarks that show a change of stance the US Federal Reserve. Powell says the US interest rates are near neutral, much different from his comments that neutral was a long way off uttered less than two months ago. The Japanese Nikkei, Australian ASX, and Korean Kospi all advanced on the news gaining an average 0.42% between them.

Chinese-focused indices like the Shang Hai Composite and Heng Seng Index fell as trade worry overcomes growth expectations. The G-20 meeting between US President Donald Trump and Xi Jinping is less than 3 days away. The meeting is not expected to produce concrete results but there is an expectation for tangible shifts in policy stance from both leaders, primarily an indication that no new tariffs would be levied.

Europe Drifts Higher In Wake Of FOMC Statement

European markets were drifting higher at midday as Powell’s comments were disseminated. The general impression is the Fed sees the need to back off of its rate-hiking timeline which means fewer rate hikes in 2019. Recent data has shown a marked reduction of inflationary pressures and that is backed up by data released today.

In the US, personal income and spending both rose more than expected but inflationary pressure was tame. Income rose a moderate 0.5% while spending rose a slightly stronger 0.6%, both a tenth hotter than expected.

On the inflation side, the PCE price index rose a modest 0.2% as expected but only 0.1% at the core level ex-food and energy, weaker than expected. The year over year comparison shows headline consumer-level inflation rising 2.0%, flat and as expected, while core inflation fell a tenth from the previous month to 1.8% and below expectation.

The US Market Braces For The G-20 Meeting

The US equities market was trading slightly lower in early pre-market action but the losses were small and not unexpected following the Wednesday rally and ahead of key events such as the FOMC minutes and G-20 meeting. With today’s PCE index consistent with Jerome Powell’s change of stance the minutes will be closely watched for further confirmation the Fed is backing off of the rate-hike timeline.

The G-20 meeting? Its importance can’t be stated clearly enough. The results of this meeting are going to echo around the world. The problem is that it involves two of the most influential men in the world who come from vastly different cultures, anything could happen.