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Global Stocks Weaken Ahead of New Round of U.S.-China Trade Talks

Global stocks sagged on Wednesday as investors remained cautious ahead of another round of high-level trade talks between the U.S. and China planned for next week.

In Europe, the Stoxx Europe 600 was down 0.3% in morning trading. Asian stocks led the market lower with Hong Kong’s Hang Seng Index down 0.5% and the Shanghai Stock Exchange down marginally too.

Futures pointed to a modest opening uptick in the U.S. of 0.1% for both the Dow Jones Industrial Average and the S&P 500.

On Tuesday it emerged that Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin planned to fly to Beijing next week, with Chinese negotiators heading to Washington after that, in what is being framed as a final push to close a deal between the world’s two largest economies.

Many analysts attributed the rally in equity markets this year to high hopes for U.S.-China trade negotiations. Sentiment around the talks had dimmed in recent days as reports suggested major issues remained on the table.

Many analysts, like Liz Ann Sonders, chief investment strategist at Charles Schwab, have flagged concerns that any new trade deal might be “deal light,” an agreement that allows the administration to “take a victory lap” but doesn’t tackle issues such as intellectual property theft.

“The algorithmic trading has been highly correlated to news on trade, so if you wanted to point to a fundamental driver of this, a lot of it is hope for a trade deal,” said Ms. Sonders, adding that markets are already pricing in good news from the talks.

The WSJ Dollar Index, which tracks the dollar against a basket of 16 currencies, was down 0.1% on Wednesday. The 10-year U.S. Treasury edged down to 2.598%, from 2.614% on Tuesday. Yields move inversely to prices.

Later Wednesday, the U.S. central bank will release its economic forecasts, and Chairman Jerome Powell’s press conference will be watched for signals on future monetary policy and the strength of the U.S. economy.

Global markets have been in flux in recent weeks as investors digested a slew of conflicting economic data from the U.S., including disappointing payroll and inflation figures. Many analysts are now asking how long the U.S. will continue to grow as the effects of the Trump administration’s generous tax policies wear off.

“At the same time you saw an administration provide all this fiscal stimulus, they basically offset it by launching a trade war,” Ms. Sonders said. “So we’re in uncharted territory in trying to gauge the impact it’s going to have on earnings, the economy, on animal spirits and confidence.”

Meanwhile, in the U.K. many analysts are expecting the Brexit deadline to be extended beyond the end of the month as Prime Minister Theresa May struggles to craft a deal that is palatable to both Westminster and Brussels.

Analysts at Rabobank called the situation “out of control” and warned that markets could have become “complacent” about the chances that the U.K. could come tumbling out of the block without an agreement, triggering a selloff in the British pound.

“In the coming days faith amongst traders in an ability of U.K. [members of Parliament] to make rational decisions could fade rapidly and cause a major selloff,” they said in a recent note to clients.

The pound fell 0.4% against the U.S. dollar on Wednesday to $1.3218. The FTSE 100 index, which is dominated by large international businesses, dropped 0.1% while the FTSE 250 was down only marginally.

Elsewhere in commodities, global benchmark Brent crude oil was up 0.1% at $67.66 per barrel.
Source: Dow Jones

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