Global equities are trading mixed as U.S.-China trade talks continue and investors await commentary from the Federal Reserve.
According to the White House, the trade talks are aimed at "achieving needed structural changes in China that affect trade between the United States and China. The two sides will also discuss China's pledge to purchase a substantial amount of goods and services from the United States." Trump's team seems determined to reach a deal that avoids a step up in tariffs on March 1.
Elsewhere, the chances of a no-deal Brexit seem to be rising every day. Seven members quit the U.K.'s Labour Party this weekend over issues including Brexit and anti-semitism. Prime Minister Theresa May is still hoping that parliament will accept her Brexit withdrawal deal before the March 29 deadline.
Central Banks and governors are to the fore this week. The Fed, European Central Bank (ECB), Bank of Canada (BoC), and Reserve Bank of Australia (RBA) will all see minutes published or have their governors speak.
With all this in mind, here are five things the global markets are talking about on Tuesday.
1. Global Equity Markets Trade Mixed
In Japan, stocks ticked up to new two-month highs overnight on hopes of a breakthrough in U.S.-China trade talks, though the gains were led by defensive shares as investors remained cautious on the global economic outlook. The Nikkei share average edged up 0.10 percent to its highest close since mid-December, while the broader Topix added 0.28 percent.
In Australia, shares closed modestly higher overnight as losses in the mining and healthcare sectors were offset by significant gains in financial stocks. The S&P/ASX 200 index rose 0.3 percent at the close of trade. The benchmark had gained 0.4 percent yesterday. In Korea, stocks sagged on weaker export prices. The Kospi stock index closed out down 0.17 percent.
In China and Hong Kong, stocks ended lower overnight, snapping a two-month and six-week rally respectively, as investors booked profits partly fuelled by optimism that China and the U.S. will hammer out a deal to resolve their trade dispute. The CSI300 closed 0.2 percent lower, while the Hang Seng index ended 0.4 percent lower and the China Enterprises Index closed 0.3 percent weaker.
2. Oil Trades Atop 2019 Highs On OPEC Cuts
Oil trades atop of this year's high print, supported by OPEC+ led supply cuts, although investor concerns about slowing economic growth is currently capping gains.
Brent crude has eased to $66.22 a barrel, not far from the 2019 high of $66.83 reached on Monday, while U.S. crude is up 54c to $56.13.
The supply curbs led by OPEC have helped crude prices rally more than 20 percent in 2019. Also helping prices are U.S. sanctions against Iran and Venezuela.
Nevertheless, demand-side worries remain the main drag on prices. Investors are concerned that an economic slowdown in China and Britain would "throw up further hurdles this year."
Both investors and traders remain cautious on taking on large new positions before the outcome of Sino-U.S trade talks this week.
OPEC last week lowered its forecast for growth in world oil demand this year to 1.24 million bpd. However, there are some analysts who believe that number "could be weaker still."
3. Italian Yields Jump After Industrial Orders Disappoint
Italian government bond yields backed up across the curve Tuesday morning, after data showed industrial orders in the eurozone's third-largest economy dropped 5.3 percent in December over the same month in 2017.
The disappointing data has put an end to an earlier rally in prices that was sparked by expectations for a new round of cheap multi-year loans for Italian banks by the ECB.
Italy's 10-year BTP yield was up 6 bps on the day at 1.74 percent, pushing the gap over German 10-year Bund yields to 273 bps — 10 bps wider on the day.
Elsewhere, the yield on 10-year Treasuries ticked down 1 bps to 2.66 percent. In Germany, the 10-year Bund yield dipped 2 bps to 0.09 percent, the lowest in more than a week.
4. Dollar Slips, Looks For Support
EUR/USD is a tad weaker and was holding just below the psychological €1.13 level despite mixed German ZEW data for February.
GBP/USD is holding atop of the £1.29 handle as U.K.-EU officials continue to meet to find a fix to the Irish backstop issue. Expect the market to become rather volatile and nervous if next week's vote delivered another defeat for Prime Minister May's Brexit strategy.
The SEK plunged, taking EUR/SEK to a five-month high of €10.5801 early on Tuesday morning after Swedish inflation data for January came in up 1.9% y/y, below market expectations — this compares to a 2 percent increase in the previous month, which is the Riksbank's target and was well below the consensus for 2.3 percent.
5. German Economic Expectations Brighten
German data this morning from the ZEW economic research institute showed that economic expectations improved slightly in February, albeit from an extremely low level previously, but also despite a much "gloomier assessment of the current economic situation."
The institute's measure of economic expectations increased to -13.4 points from -15.0 points in January.
The latest reading is below the historical average of 22.4 points, but narrowly beats economists' forecasts of -14.0 points.
"There are currently no signs that Germany's flagging economy will stage a swift recovery," ZEW President Achim Wambach said.
Europe's largest economy narrowly avoided recession toward the end of 2018 and many have cut their growth outlooks. The consensus now forecast Germany's economic growth at just 0.5 percent this year. If so, it would be the weakest expansion rate since 2013.
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