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Trade War Not Priced In With Any Degree of Certainty, Says Lacaille

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Trade war tensions may ease, China oil futures start trading, and Facebook remains under pressure. Here are some of the things people in markets are talking about today.

Deal hopes

Treasury Secretary Steven Mnuchin said he is optimistic that a deal can be reached with China which would avert the need to follow through on President Donald Trump’s threat to impose tariffs on $50 billion of goods from the country. Apple Inc. Chief Executive Officer Tim Cook said at an event in Beijing that he will encourage that “calm heads prevail.” His company was listed by a Chinese Communist Party newspaper as one that would be “most damaged” by a trade war. Markets, knocked into something of a tailspin after Trump’s announcement of the tariffs, are still awaiting details on what they will target, and whether further protectionist policy moves are likely. 

Yuan futures

After a 25-year wait, oil futures denominated in yuan started trading on the Shanghai International Energy Exchange overnight. With China now the world’s biggest oil importer, a local currency oil contract makes sense, and allowing foreign investors to take part in the trade should help liquidity in the market. In established oil futures, a barrel of West Texas Intermediate for May delivery was trading at $65.63 by 5:45 a.m. Eastern Time as investors shrugged off geopolitical risks following the Saudi Arabian interception of a missile fired from Yemen yesterday. 

Facebook pressure

Shares in Facebook Inc. are lower in pre-market trading as fallout from a data breach continue to dog the social-media giant. U.S. Senator Mark Warner of Virginia, the top Democrat on the Senate Intelligence Committee, said the company has not been “fully forthcoming” in a Congress probe into Russia’s attempted meddling in the 2016 presidential election, and floated the possibility of new rules for the industry. The U.K. government, meanwhile, will direct Facebook, Alphabet Inc.’s Google, Twitter Inc. and other tech companies to simplify their data management policies for consumers, the Sunday Times reported. 

Markets rise

Overnight the MSCI Asia Pacific Index rose 0.3 percent while Japan’s Topix index closed 0.4 percent higher as the yen fell against the dollar following Mnuchin’s comments on China trade. In Europe, the Stoxx 600 Index was 0.3 percent higher by 5:45 a.m. as trade tensions eased a little and stocks were lifted by M&A activity in the region. S&P 500 futures gained 1.1 percent, the 10-year Treasury yield was at 2.848 percent and gold was broadly unchanged. 

Demand check

The U.S. is slated to auction about $294 billion of bills and notes this week, the largest supply ever. With Federal Reserve Chair Jerome Powell signaling he’s happy to continue on Janet Yellen’s established gradual rate path, demand will be a key test for a market that’s found fragile footing after a steep selloff in January and February. The tables are turned in Europe, where debt supply in April is set to be outweighed by the more-than 100 billion euros ($123 billion) of bonds to be repaid, and ECB reinvestment adding to support. 

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