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Briefing highlights

  • Why market strife looms
  • Chinese exports fall
  • Stocks, loonie, oil at a glance
  • New Zealand cuts rates
  • Required reading

Will they blink?

The overriding question on this, the eve of U.S.-China trade talks, is whether anyone will blink.

That doesn’t appear likely at this point, observers warn, so prepare for more market strife as the Americans and Chinese stare each other down in advance of a threatened escalation in their tariff war.

To recap, President Donald Trump has threatened to raise tariffs on Friday, with new levies in the pipeline, if negotiations don’t improve.

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This comes as the United States and China resume talks in Washington, starting Thursday, with Deputy Premier Liu He in attendance.

“Given the continued signs of risk aversion in the markets, investors are not holding their breath for any serious progress in these talks,” said Jasper Lawler, London Capital Group’s head of research.

“The chances of the two powers resolving their issues over the coming two days of talks appear unlikely,” he added.

“Once again, we are starting to see the market price in the U.S.-China trade dispute as both an immediate and long-term risk factor, rather than an issue that was on the brink of being resolved. With this in mind, the S&P looks mispriced close to all-time highs and we can expect to see the U.S. index experience a few more sessions similar to [Tuesday’s], when it shed 1.6 per cent.”

The ”overriding fear,” of course, is that a wider U.S.-China trade war will harm the global economy amid already marked uncertainty. Which makes the staring contest so crucial to the state of global markets.

“The U.S. would need to back down for China to save face,” said Sébastien Galy, senior macro strategist at Nordea Asset Management.

“For that, China would need to reverse its course after backtracking.”

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Beijing, Mr. Galy added, could “overplay” its hand by assuming the Americans are scared of a market correction.

“The question is therefore whether the Chinese will blink because they value short-term growth more than their stature as the other superpower,” Mr. Galy said.

“The next few days may well be quite volatile.”

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Chinese exports fall

This comes as the latest numbers show a surprising drop of 2.7 per cent in Chinese exports in April from a year earlier, while imports rose 4 per cent.

“Looking ahead, the outlook for Chinese exports is challenging,” said Julian Evans-Pritchard, senior China economist at Capital Economics.

“If Trump follows through on his latest tariff threats, we think this would drag down export growth by two to three percentage points,” he added.

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“And even if a last-minute deal is struck this week to avoid further tariffs, the downbeat prospects for global growth will probably mean that export growth remains subdued.”

Markets at a glance

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New Zealand cuts rates

The Reserve Bank of New Zealand cut its benchmark rate to 1.5 per cent.

This comes as major central banks around the world pull back amid economic uncertainty.

“The decision to ease monetary policy reflects rising concerns regarding the health of the economy,” said Tuuli McCully, Bank of Nova Scotia’s head of Asia-Pacific economics.

“The [monetary policy committee] noted that domestic economic growth momentum has continued to slow, while the external backdrop – driven by persistent trade concerns – remains uncertain.”

Ticker

Thomson Reuters sales up

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From Reuters: Thomson Reuters Corp. reported a rise in quarterly sales and reaffirmed its forecast for the rest of this year and 2020.

Torstar loss narrows

From The Canadian Press: Torstar Corp. reported a smaller first-quarter loss than a year ago as revenue declined.

Required reading

SNC-Lavalin weighs breakup

SNC-Lavalin Group Inc. has told investors it is considering breaking up the company by spinning out some businesses before its criminal case ever gets to trial, a move that could include carving out British unit WS Atkins. Nicolas Van Praet and Tim Kiladze report.

Barlow on oil

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The recent weakness in global oil prices is likely a result of speculative froth burning off and funds reducing optimistic bets on the commodity price, market strategist Scott Barlow writes. And the latest data on futures market positioning suggest the process has a bit further to go.

Legault’s dilemma

Columnist Konrad Yakabuski looks at how a possible takeover of Air Transat leaves Quebec Premier François Legault with a head-versus-heart dilemma.

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