Five Things You Need to Know to Start Your Day

Written by
Libby McGowan
Written by

Libby McGowan

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Stocks slump and the yield curve steepens after the Federal Reserve stands pat on interest rates. And all eyes turn to Beijing Thursday where U.S. and Chinese negotiators are set to discuss trade. Here are some of the things people in markets are talking about.

China Draws Hard Line

A senior government official said China won't succumb to "threats" from the U.S. just as trade talks are set to begin in Beijing. China won't accept any U.S. preconditions for negotiations, such as abandoning its long-term advanced manufacturing ambitions or narrowing the trade gap by $100 billion, said the official, who asked not to be named, citing protocol. Meanwhile, there may be signs that the Trump effect is starting to weigh on Chinese exports. Wednesday's PMI report showed declines in the sub-indexes that track new export orders.

Fed Holds Steady

Federal Reserve officials left interest rates unchanged Wednesday, acknowledging U.S. inflation is close to target without indicating any intention to veer from their gradual path of interest-rate increases. Policy makers may have signaled their willingness to allow inflation to exceed their 2 percent goal somewhat by adding a reference to the “symmetric” nature of their target. Stocks sagged after the report, the yield curve steepened and the dollar rallied to session highs. The 10-year Treasury reversed an early decline that sent yields near 3%.

Global Economy Perks Up

The world economy showed signs of stabilizing after a recent moderation as manufacturing activity strengthened for the first time this year. Recent PMI data from more than 40 countries is reinforcing the advice from economists at Goldman Sachs and JPMorgan Chase not to bet against the world economy just yet. The data may calm investors who spent the early part of 2018 fretting about a trade war and fading global growth despite forecasts from the International Monetary Fund for the fastest expansion this year since 2011. Goldman's Jan Hatzius said this week they are still looking for a 4.1 percent expansion worldwide in 2018.

Investors Still Fleeing Emerging Market Bonds

Remember how fast foreign investors fled emerging-market bonds during the 2013 taper tantrum? It's even quicker now. Investors yanked more than $5.5 billion from the markets since April 16 as 10-year U.S. Treasury yields rose past 3 percent and the dollar gained, according to the Institute of International Finance. That's almost $100 million more per day than during the tantrum five years ago. However, bond giant Pimco says investors fleeing emerging markets could find refuge in Asia, with debt in the region higher rated on average than developing-nation peers.

Coming Up…

The Fed should dominate early market action in Asia Thursday, even with Tokyo off celebrating Golden Week. Attention then turns to trade talks in Beijing. On the economic data front, there's Aussie trade and building permits data, as well as Hong Kong retail sales.