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Trump doubles down

Trade war looks likely to intensify, watching out for key monetary policy decisions, and Asian stocks look set to fall at the start of the week. Here are some of the things people in markets are talking about today.

Trade Headaches

U.S. President Donald Trump doubled down on his threats to impose higher tariffs on China’s goods, saying he’s ready to tax all imports “at short notice.” While economists see the immediate impact of trade tension as limited, the effect on economic confidence may be larger, warned former People’s Bank of China Governor Zhou Xiaochuan. Trade data for August released Saturday showed China’s trade surplus with the U.S. rose to a record as exporters front-loaded orders before any additional tariffs on Chinese goods could take effect.

Policy Decisions

Central banks in Turkey and Russia will make key interest-rate decisions this week, with investors waiting to see how far policy makers will go to defend their weakening currencies. Meantime, the near-fatal stabbing of election front-runner Jair Bolsonaro will remain a focus in Brazil. That could set the stage for another roller-coaster week for emerging markets, still reeling from a selloff that drove stocks into a bear market for the first time since March 2016. Expected swings in emerging-market currencies climbed last week to the highest level since February 2016, according to a JPMorgan Chase & Co. gauge, while a MSCI Inc. index of developing-nation stocks entered a bear market in its worst week since mid-August.

Coming Up…

The week kicks off with second-quarter Japan GDP, which may be revised up. Also Monday, China is forecast to report that consumer and producer inflation eased in August. Meanwhile, Turkish GDP comes late in the Asian session and will be closely watched. Tuesday will bring Philippines July trade data after a series of huge deficits over the past year. There will also be Australian business sentiment, which had softened in recent months even before the past month’s political meltdown. Wednesday brings Australia consumer confidence and another chance to judge the impact of Malcolm Turnbull’s removal as prime minister on sentiment, as well as Indian CPI. Staying with Australia, where jobless numbers are due Thursday. Friday rounds things out with China retail sales, industrial production and fixed asset investment for August. It will also be a busy week for Federal Reserve watchers:  Atlanta’s Raphael Bostic, St. Louis’s James Bullard and Chicago’s Charles Evans appear at various events this week.

Asia Stocks to Fall

Asia stock futures are pointing lower after U.S. equities dropped Friday on Trump’s China trade warning. The dollar climbed and Treasuries fell on data showing the U.S. added 201,000 jobs and wage gains picked up, bolstering the prospect for further Fed hikes. The 10-year Treasury yield pushed above 2.94 percent. Emerging markets managed to snap seven days of declines. WTI crude was flat and gold edged lower.

Sweden’s Political Gridlock

Sweden may face weeks or even months of political gridlock after an inconclusive election result left the biggest Scandinavian economy without a clear candidate to form a government. Neither the Social Democrat-led coalition of Prime Minister Stefan Lofven nor the opposition Alliance bloc won enough votes to form majority governments. A preliminary count of about 82 percent of electoral districts gave Lofven’s parties 144 seats in the 349-member parliament, and the Alliance 142 seats. The anti-immigration Sweden Democrats, which aren’t part of either bloc, were poised to get about 63 seats, not quite as many as some pre-election polls indicated but significantly better than in 2014.

What we’ve been reading

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

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

This week marks ten years since Lehman Brothers filed for bankruptcy protection. In many ways, Sept. 15, 2008 marked the beginning of the stories that still dominate financial news today. For one, the obsession with the flattening yield curve is a reminder that the U.S. is nearing the end of the long business cycle that started after Lehman. China’s ability to backstop this current slowdown via formal, on-balance sheet credit is viewed against the backdrop of the lending binge that pulled the world from the edge in 2009. In fact, the debt issue that now constrains Beijing’s ability to embark on something similar now is a product of that precise endeavor.

With the exception of the Fed, global central banks have only recently become comfortable talking about higher rates. As a consequence, global fund managers no longer need to scrape the bottom of the barrel for yield. As Progress Asia Capital CEO Vikas Gattani points out, this unwinding of long emerging-market positions is a symptom of markets shedding leverage built up to amplify yields that until recently weren’t there. I gotta say though: looking back, one prediction that didn’t quite come true was Zimbabwe-esque inflation following three rounds of Fed quantitative easing. This week’s probably a good time to start reflecting on all these things.

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