US-China trade talks boost Wall Street as Turkey contagion fears ease

The week ahead includes the annual Jackson Hole symposium that attracts central bankers from around the world.
Trimtabs Asset Management portfolio manager Janet Johnston says Turkey has limited contagion risk

Top Chinese and US negotiators will this week meet in Washington DC to map out future high-level talks that may break the trade war impasse.

A nine-member delegation from Beijing, led by Vice Commerce Minister Wang Shouwen, will meet with US officials led by Treasury undersecretary David Malpass on August 22-23.

This marks an effort by both sides to come up with a settlement ahead of planned meetings between US President Donald Trump and Chinese President Xi Jinping in November.

They will meet first at the Apec leaders’ summit at Port Moresby in mid-November, followed by a second session at the G20 leaders’ summit in Buenos Aires at the end of that month.

The week ahead also includes the Kansas City Federal Reserve’s annual Jackson Hole symposium, which attracts central bankers from around the world.

Economic data due
Important economic indicators will be released in the US, Japan and the eurozone.

Existing US home sales data for July from the National Association of Realtors will be released on Wednesday, followed on Thursday by new-home sales from the Commerce Department, also for July.

US durable goods orders on Friday may decline, adding to the latest softness in global orders. Any decline should mainly be due to softer aircraft orders and excluding transportation, orders of durable goods should increase 0.5%, a consensus shows.

The eurozone manufacturing performance index, due on Thursday, could increase in August after being up for the first time in six months in July. This suggests GDP growth will remain around the current level.

Japan will publish its core CPI (excluding fresh food) inflation. The consensus is for at 0.9% year-on-year in July from 0.8% in June while the overall CPI should be up 0.3 points to 1.0%.

On the political front, the UK government is set to start publishing its 70 papers explaining what citizens and businesses need to do in order to prepare for a no-deal Brexit scenario. 

Wall Street up
Stocks rose and bonds fell at the end of last week, which was dominated by the collapse of the Turkish lira and fears that country’s economy is on the brink of a Greek-style crisis.

Oil prices rose on the China-US trade talks news, after facing pressure throughout the week from a stronger US dollar and rising inventories.

US crude for September delivery rose 0.7% to $US65.91 a barrel while Brent, the global benchmark, gained 0.6% to $71.83.

US oil futures fell 2.5% for the week. Prices have declined for the past seven weeks, while Brent has been down for three.

The US dollar, which generally has an inverse relationship with dollar-denominated commodities like oil, reached a 14-month high last week, An index based on 16 currencies fell 0.3% on Friday.

Turkey’s mounting woes contributed to a punishing run of trading sessions on Wall Street as investors feared a spill over into other markets.

“Turkey’s issues are unique and we really don’t see a single factor that creates a contagion risk,” says Trimtabs Asset Management portfolio manager Janet Johnston, who adds that global and US exposure to Turkey is fairly small compared with other emerging-market countries.

Profits underpin stocks
The Dow Jones Industrial Average finished a second consecutive week higher, while US government bonds continued to slip. The yield on the benchmark 10-year Treasury note rose to 2.873% from 2.871% on Thursday.

The stock market was boosted by another week of solid corporate profit reports.

The Dow climbed 110.59 points, or 0.4%, to 25,669.32, while the S&P 500 gained 0.3%, to 2850.13. The Nasdaq Composite rose 9.81 points, or 0.1%, to 7816.33.

For the week, the Dow and S&P 500 advanced 1.4% and 0.6%, respectively. However, the Nasdaq was down 0.3% as tech stocks came under pressure earlier in the week.

Consumer staple stocks were among the best performers, rising 3.2% over the week as investors have sought their relative safety to hedge against market volatility.

In the Dow, Coca-Cola rose 0.8% and Walgreens Boots Alliance gained 1.2%.

In Europe, the Stoxx Europe 600 fell 0.1% on Friday to extend its decline for the week to 1.2%, its biggest weekly drop since June. France CAC 40 eased 0.1%, Germany DAX fell 0.2% and the UK's FTSE 100 rose marginally.

Stocks in Asia were mixed. Hong Kong’s Hang Seng edged up 0.4% on Friday, snapping a five-day losing streak as index heavyweight Tencent rebounded after its poor earnings results.

The Shanghai Composite fell 1.3%, ending the week down 4.5% to touch its lowest closing value since January 2016.