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A fresh round of trade talks

Bloomberg
The U.S. proposes a new round of trade talks with China. More Wall Street heavy hitters sound warnings on the outlook for the American economy. And Apple unveils its latest iPhone and watch. Here are some of the things people in markets are talking about.

U.S. Floats New Round of China Trade Talks

The U.S. government has proposed another round of trade talks with Beijing to avoid further escalation in President Donald Trump’s trade war with China, according to three people familiar with the matter. U.S. equities briefly rose on expectations the development could ease growing tensions. Senior officials led by Treasury Secretary Steven Mnuchin recently extended the invitation to counterparts in China, the people said, speaking on condition of anonymity. One of the people said the talks, if agreed to by the Chinese, are likely to take place in Washington. The proposal may reduce bilateral tensions just days after Trump threatened to slap tariffs on nearly all goods the U.S. buys from China. Futures on equities in Hong Kong and China rose, and the Australian dollar also got a boost.

Tech Drop Offsets Trade Hopes

Stocks in the U.S. initially cheered the news of potential trade talks, but a drop in tech left the S&P 500 little changed by the end of the session. Chipmakers declined after Goldman Sachs and Stifel downgraded several U.S. companies amid mounting industry concerns. Oil surged, sending Brent above $80 a barrel for the first time since May, as Hurricane Florence took aim at the U.S. East Coast and amid signs global supplies are shrinking. The dollar sank the most in two weeks amid disappointing U.S. producer inflation numbers and optimism over Nafta negotiations, which boosted the Canadian dollar. Treasuries retreated from their highs but held gains.

Goldman, Dalio Sound Alarm

Billionaire hedge fund manager Ray Dalio predicted the U.S. economy is about two years from a downturn, which will see the dollar plunge as the government prints money to fund a swelling deficit. The combination of rising interest rates and mounting costs from pension and healthcare obligations will put pressure on the budget, the founder of Bridgewater Associates told Bloomberg Television. “We have to sell a lot of Treasury bonds, and we as Americans will not be able to buy all those treasury bonds,” he said. “The Federal Reserve will have to print more money to make up for the deficit, will have to monetize more, and that’ll cause a depreciation in the value of the dollar.” Meanwhile, the warnings from Wall Street are only getting louder. Goldman Sachs and JPMorgan Chase are the latest to weigh in, highlighting the potential danger to corporate America if a full-blown trade war erupts. Goldman chief strategist David Kostin went as as far as calling for a bear market under a scenario where the U.S. imposed 10 percent tariffs on all imports.

Apple Unveils Biggest-Ever iPhone

Apple took the wraps off a renewed iPhone strategy on Wednesday, debuting a trio of phones that aim to spread the company’s latest technology to a broader audience. The iPhone Xs, starting at $999, succeeds last year’s flagship model with a faster A12 processor and updated cameras. The iPhone Xs Max is a higher-end version with a 6.5-inch OLED screen, making it one of the biggest on the market — and one of the most-expensive at $1,099 and up. There are 512 GB storage options for the first time. The third model, called the Xr, is Apple’s biggest hardware bet of 2018. It retains the key advances of the first iPhone X — facial recognition and an edge-to-edge display — but is cheaper while being noticeably larger at 6.1 inches. Apple also unveiled the most-significant upgrades to the Apple Watch since it first went on sale in 2015, turning the product into more of a health monitoring device.

Coming Up…

It’s a light data day in Asia, with Japanese PPI and Aussie jobs the highlights. But the major action will be elsewhere. The European afternoon brings policy decisions from the European Central Bank and the Bank of England. Both are expected to hold rates steady, but the ECB is poised to tweak forecasts lower as global trade tensions damp external demand, people familiar said. In Britain, optimism over a potential Brexit deal could lead to a more hawkish-sounding BOE driving the currency higher. In the U.S., traders will be anxiously awaiting the CPI report. A Federal Reserve survey Wednesday said tariffs were contributing to rising input costs, especially for manufacturers.

What we’ve been reading

This is what caught our eye over the last 24 hours.

And finally, here’s what David’s interested in this morning

There’s never a dull year in the Chinese market. Either stocks knock on heaven’s door or they find new ways of moving closer to the earth’s core. Over the last 14 calendar years, the Shanghai Composite Index has appeared nine times in either the top or bottom 10 among all stock indices globally. In 2008 and 2011, when it didn’t make that cut, we still had downward moves of 65 percent and 22 percent respectively. And in four years where the returns seemed normal (2012, 2013, 2015 and 2017), the index swung by an average of 24 percent within the calendar year.

Right now China is effectively tied for last place with Turkey on global equity rankings. This sets up a potentially epic fourth quarter. More of our guests have started looking more closely at the market. Two days ago it was David Gaud of Pictet Wealth Management, and yesterday it was Brett McGonegal of Seven Stars Cloud Group. That’s at least two voices this week alone who’ve advised keeping an eye on China. What’s important here is that the equation is binary. It’s probably the only market in the world of its size whose complexion can change on a headline. When it takes off, conventional measures of market momentum don’t really apply. A positive trigger isn’t obvious at this point. But don’t count this one out just yet.

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