Deal Mirage, Earnings Unease, And G7 Chatter
Ashraf Laidi | Jul 18, 2019 08:14AM ET
A fresh report on Wednesday saying the U.S. and China have failed to make any progress since the G20 hurt sentiment. Moreover, there is a growing sense that the conditions aren't right for a deal. GBP is the strongest currency on a combination of stronger than expected U.K. retail sales and comments from EU chief Brexit negotiator reviving hopes of reaching a compromise on the Irish border issue.See the notes on Alcoa (NYSE:AA), CSX (NASDAQ:CSX) and Netflix (NASDAQ:NFLX) below. Euro lost ground on a report stating that the ECB may revamp its approach to inflation.
A WSJ report said U.S.-China talks are hung-up on executing the U.S. pledge to allow Huawei to buy U.S. technology. Once that's sorted out, China has pledged to buy US agricultural goods. The problem is the White House is struggling to decide what to allow the Chinese telecommunications company to buy so everything has ground to a standstill.
The inability to make any concrete progress after several indications of an agreement is a sign of trouble. Equity markets stumbled on Tuesday after initial comments from Trump expressing displeasure. They fell further Wednesday on the report.
The economic backdrop also makes it tough to envision a deal. The U.S. reopened talks in December after a 20% drop in stock markets; now they're at record highs. There are also signs that China's economy is surviving a pivot towards consumers with retail sales strong in the latest quarter.
h3 G7 FX Chatter/h3Here is a tweet from Ashraf on the G7 meeting in Paris:
In other economic news, the Fed's Beige Book underscored a solid U.S. economy with 'modest' growth. Commentary highlighted unease about trade but a 'generally positive' outlook and higher loan demand. Earnings continue to paint a slightly different picture. Railway operator CSX Corporation (NASDAQ:CSX) warned of softening demand Tuesday and aluminum giant Alcoa (NYSE:AA) cut its global demand forecast Wednesday. Netflix (NASDAQ:NFLX) tumbled 13% on news that it lost 130K U.S. clients.
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