U.S. Stock Futures Start Week With a Reprieve
A positive start for U.S. stock futures provided a respite for traders after the market’s worst drubbing in two years. They speculated this week couldn’t be worse than the last one, but weren’t sure. “It all depends on the news out of the White House, and there some hope that they’re going to appease the investors,” said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland. “The markets will have to get used to the idea of uncertainty when it comes to trade. If everyone keeps their heads cool, maybe we could get by without a significant damage.” Equity futures rose in New York, signalling a reprieve after a harrowing week amid the threat of a trade war. Contracts on the S&P 500 gained 0.8 percent at 6:50 a.m. in London, as investors weighed whether the Trump administration would follow through with tariffs. The underlying index lost 6 percent through Friday, the worst week in more than two years. Nasdaq 100 Index futures climbed 1 percent after technology investors were battered by the steepest rout since 2015. The risk-off mood mellowed as investors speculated President Donald Trump and China will step back from the brink of trade spat. U.S. Treasury Secretary Steven Mnuchin eased concern after he told Fox News that he’s “cautiously hopeful” the two will reach a deal to avoid tariffs and South Korea struck an agreement on steel levies over the weekend. Investors remain concerned that protectionist rhetoric will turn into trade policy that will disrupt the global economic rebound that’s fueled corporate earnings growth. Analysts have so far been quiet on what will happen to corporate profits amid the trade chaos. The first-quarter reporting season will start in less than three weeks.
IMF’s Lagarde Urges Euro Powers to Build Unified Capital Market
International Monetary Fund head Christine Lagarde called on Germany and France to spur further euro-area integration, saying Brexit makes a capital-markets union on the continent more urgent. “If these two countries can set their minds to reforming the euro area, if they carry with them some of the other players, including the Netherlands, including Italy whenever that government is formed, then there would be real hope to move forward,” Lagarde said in a Bloomberg Television interview on Monday. Lagarde laid out her vision of a strengthened European currency union during a visit to Berlin, portraying a successful euro area as an antidote to populism and protectionism. Efforts to reduce barriers to capital flows are most advanced and governments are “almost there” on a backstop for the bank resolution, the IMF managing director said. To prepare for the next crisis that she said will inevitably come, Lagarde proposed setting up a “rainy-day fund” in the euro area to bolster its defenses against shocks. With Germany’s new coalition in place and the regional economy booming, she called on governments to agree on a package including all three policy areas by the end of 2018. “There’s a window of opportunity from now until June, when they have agreed to actually deliver some proposals,” she said in the interview. “I would say that until the end of the year is really the window of opportunity when they can give signals, set objectives and agree on the principles.” Britain’s departure from the European Union adds urgency, Lagarde said.
Roach Sees China Treasury Sales as `Last Defense’ in Trade Fight
Selling U.S. Treasuries would be China’s “last defense” if the White House pushes Beijing too hard on trade, said Stephen Roach, former non-executive chairman for Morgan Stanley Asia. “The Chinese side knows this is an option they have,” Roach said in a Bloomberg Television interview on the sidelines of the China Development Forum in Beijing. “If we keep pushing China, and clearly threatening to damage their economy and their growth outlook, China will view this is an active economic war and respond in kind.” China’s early responses to U.S. tariffs and other trade threats have been “judicious and modest,” said Roach, now a senior fellow at Yale University and author of the 2014 book “Unbalanced: The Codependency of America and China.” Beijing last week unveiled tariffs on $3 billion of U.S. imports in response to steel and aluminium duties ordered by the U.S. The U.S. committed a “very serious policy blunder motivated by politics, not economics,” because it has a trade deficit with more than 100 countries and the Trump administration is scapegoating one to address those imbalances in the name of helping the middle class. “It’s not going to work,” he said. “Chinese peers will just go to other producers and that will end up taxing the people he’s trying to protect. There’s really not a great appreciation of economic policy analysis in the Trump administration, and given the changes they’re making in their advisory team, it’s going from bad to worse.”