US-China Trade Deal Mirage & Earnings Unease

07/18/2019 12:09 pm EST

Focus: FOREX

Adam Button

Co-Owner and Managing Director,

Frustration over a lack of progress in US-China trades talks is weighing on market sentiment, writes Adam Button.

A fresh report on Wednesday saying the US-China trade talks have failed to make any progress since the G20 hurt sentiment. Moreover, there is a growing sense that the conditions aren't right for a deal. The British pound (GBP) is the strongest currency on a combination of stronger than expected UK retail sales and comments from EU chief Brexit negotiator reviving hopes of reaching a compromise on the Irish border issue. See the notes on Alcoa, CSX and Netflix below.

The euro lost ground on a report stating that the European Central Bank may revamp its approach to inflation. Both of this week's newly added Premium trades are in the green.

Wall Street Journal report said US-China talks are hung-up on executing the U.S. pledge to allow Huawei to buy U.S. technology. Once that's sorted out, China has pledged to buy U.S. agricultural goods. The problem is the White House is struggling to decide what to allow the Chinese telecommunications company to buy so everything has grinded to a standstill.

The inability to make any concrete progress after several indications of an agreement is a sign of trouble. Equity markets stumbled Tuesday after initial comments from President Trump expressing displeasure and they fell further Wednesday on the report.

The economic backdrop also makes it tough to envision a deal. The United States reopened talks in December after a 20% drop in stocks; now they're at record highs. There are also signs that China's economy is surviving a pivot towards consumers with retail sales strong in the latest quarter.

In other economic news, the Fed's Beige Book underscored a solid U.S. economy with modest growth. Commentary highlighted unease about trade but a “generally positive” outlook and higher loan demand. Earnings continue to paint a slightly different picture. Railway operator CSX Corp. (CSX) warned of softening demand Tuesday and aluminum giant Alcoa Corp. (AA) cut its global demand forecast Wednesday. Netflix (NFLX) tumbled 13% on news that it lost 130K U.S. clients.

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