Trade Takes Center Stage, And The Futures Markets Look Nervous

By: Spencer Israel

 The final week before the start of the Q3 earnings season is a busy one.

The Fed calendar is jammed, as Chair Jerome Powell will be making three public addresses in the first half of the week, capped off by the release of the September FOMC minutes on Wednesday. We’re also not light on economic data, with CPI and Consumer Sentiment due out on Thursday and Friday respectively.

The market will be closely listening for a change in tone from Powell, but the biggest story of the week will undoubtedly be trade.

A week after the U.S. opened a second trade war front—levying $7.5 billion worth of tariffs on European exports ranging from Airbus planes to French wine set to take effect on Oct. 18.—all eyes will be back to the U.S.’s primary trade foe: China.

High-level meetings are scheduled between the two delegations on Thursday and Friday, the first round of discussions since President Trump delayed $250 billion worth of new tariffs on Oct. 1. Vice-premier Liu He, China’s top trade negotiator, is expected to be present.

How Will The Market React?

Markets closed on a high note Friday, buoyed by a weak September jobs report that seemed to reinforce the recently dovish Fed’s plan to keep cutting interest rates. Though S&P futures rallied on the news, it still wasn’t enough to offset the weak ISM Manufacturing figure that set the tone on Tuesday and Wednesday.

For the week, S&P futures closed down 0.59%, while gold closed up 0.46% and oil fell 5.6%.

Heading into the weekend, hopes were high that a deal could be hammered out this week. Between the Oct. 1 tariff delay and the categorical denial by administration officials that the U.S. was considering limiting U.S. investments in China, it was thought that substantial progress was not far off.

But by Sunday night those expectations had already been dampened, thanks to a report out of Bloomberg that Chinese officials “are signaling they’re increasingly reluctant to agree to a broad trade deal pursued by President Donald Trump, ahead of negotiations this week.” S&P futures opened down 0.71% and gold opened up 0.55% Sunday night on the news.

If anything, that headline looks like it will undo what little relative calmness—a three-point fall in the VIX—had overcome the market on Friday. Sunday’s opening gap down in the S&P futures tells us that tensions are sure to be heightened now, and the market will likely have to ride out this never-ending trade war for at least another week.

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