FOMC minutes and trade jitters affect markets

Summary:

• FOMC minutes signal some officials were afraid of a liquidity squeeze
• A lot of conflicting headlines regarding US-Sino trade discussions
• Risk-on seems to prevail this morning

Recent hours have been outstandingly turbulent for investors all around the globe for two reasons: FOMC minutes as well as a string of US-China trade talks headlines. As far as the former is concerned, the minutes showed that some officials were debating when to end current monetary policy easing suggesting that there is no longer a broad consensus to keep delivering ‘mid-cycle adjustments’. On top of that, many officials cited inflation when justifying a September rate reduction (thus having in mind a disappointment in PPI earlier this week and a possible weaker-than-expected CPI reading today it could convince more FOMC members to opt for cuts). The interesting point was also made in terms of the latest liquidity squeeze as the committee discussed a more permanent tool to solve these disruptions. 

In turn, when it comes to trade talks between US and Chinese officials we have been offered a lot of misleading headlines during Asian hours trading. They have noticeably affected financial markets but the overall tone seems to be supportive of riskier assets. Ultimately, a Chinese delegation is expected to stay in Washington through Friday, however, expectations to hammer out a deal seem to be rather thin. A bright spot was the fact that the US could roll out a currency deal reached with Beijing earlier this year. If so, it would see a 5% next week tariff increase on $250 billion of Chinese goods suspended, that is why markets have cheered this news.

US100 has seen a major reversal during Thursday’s trading. Source: xStation5