The Week Ahead Video

EU - FX | Currencies: Dollar set for biggest fall in 5 weeks as trade talks resume

3-4 minutes - Source: CNBC

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A Chinese clerk counts renminbi yuan banknotes at a bank in China on December 2015.
Jie Zhao | Corbis News | Getty Images

The dollar was on track for its biggest daily drop in five weeks on Thursday against its rivals as the prospects of a partial trade deal between China and the United States fuelled appetite for trade-oriented currencies such as the euro and the Australian dollar.
Reports the United States is weighing a currency pact with China that could also see a planned tariff hike next week being suspended fueled a rally in risky assets, though trading remained volatile as negotiations got underway. “We are not surprised by the dollar weakness as a trade deal would trigger further risk appetite and the Fed also seems to be in easing mode,” said Nikolay Markov, a senior economist at Pictet Asset Management.
Against a basket of its rivals, the dollar fell 0.4% to 98.66 and was on track for its biggest single-day drop since Sept. 4.
The dollar’s weakness ignited a rally in the euro with the single currency rallying 0.5% to a two-week high at $1.10335 as hedge funds cut back their extreme short bets.
The euro has been caught in the cross fire between a protracted trade war between the United States and China as the trade-oriented economy has struggled to gain traction this year and pulling the currency down 4% so far this year.
Expectations of more rate cuts also weighed on the greenback.
Market bets for a quarter point U.S. rate cut has swelled to 85% at its next policy meeting in October compared to 53% a month earlier.
With negotiations between Beijing and Washington getting underway on Thursday, market watchers say any concessions from China would be touted as a success from U.S. officials and that might fuel further yen weakness and gains in the Aussie dollar.
“The (U.S.) President should be keen to achieve that, in particular during the election campaign. ..I think the optimism has risen repeatedly over the past few days,” Ulrich Leuchtmann, an FX strategist at Commerzbank, said in a daily note.
A currency pact would pave the way for further negotiations on core issues such as intellectual property and forced technology transfers, with reports that Beijing has offered to increase purchases of agricultural goods further signaling a thaw in trade tensions.
“It remains to be seen whether a partial trade deal will be acceptable for President Trump who wants to secure a broader agreement,” MUFG strategists said.
The Chinese currency in the offshore market gained for a second day, rising 0.3% versus the greenback to 7.1145 yuan per dollar.
The pound climbed 0.4% to $1.2247, though it remained close to a one-month low amid uncertainty over Britain’s exit from the European Union before a slew of British data.

Bonds | Treasury Yields Report: Treasury yields rise after Trump says he will meet with Chinese vice premier

Sam Meredith

2 minutes - Source: CNBC

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U.S. government debt prices fell on Thursday after President Donald Trump said he would meet with Chinese Vice Premier Liu He on Friday.
The 10-year Treasury yield rose 6 basis points to around 1.65% while the 2-year yield climbed 5 basis points to 1.512%. The 30-year bond yield advanced to 2.15%. Yields move inversely to prices.
Trump tweeted: “Big day of negotiations with China. They want to make a deal, but do I? I meet with the Vice Premier tomorrow at The White House.”
The tweet raised hopes for progress on the U.S.-China trade front as high-level talks kicked off on Thursday.

U.S. Markets Overview: Treasurys chart

TICKER	COMPANY	YIELD	CHANGE	%CHANGE
US 3-MO	U.S. 3 Month Treasury	1.69	-0.015	0.00
US 1-YR	U.S. 1 Year Treasury	1.623	0.023	0.00
US 2-YR	U.S. 2 Year Treasury	1.54	0.066	0.00
US 5-YR	U.S. 5 Year Treasury	1.484	0.075	0.00
US 10-YR	U.S. 10 Year Treasury	1.663	0.076	0.00
US 30-YR	U.S. 30 Year Treasury	2.157	0.071	0.00

A report overnight suggested talks could have been cut short. The South China Morning Post said Liu could leave Washington on Thursday, rather than Friday as initially scheduled.
“We are not aware of a change in the Vice Premier’s travel plans at this time,” a White House spokesperson told CNBC in response to the South China Morning Post’s report. A senior administration official told CNBC’s Kayla Tausche that Liu is still scheduled to depart Friday evening, and dinner is on for the delegation Thursday evening in DC.
Yields rose on Thursday despite weaker-than-expected inflation data. The consumer price index was flat in September on a month-over month basis. Economists polled by Reuters expected a gain of 0.1%.

— CNBC’s Fred Imbert & John Melloy contributed to this report.

Energy | Oil | Oil Price Report: Oil prices rise as OPEC pledges decision on supply

3-4 minutes - Source: CNBC

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Journalists gather next to a damaged installation in Saudi Arabia’s Abqaiq oil processing plant on September 20, 2019.
Fayez Nureldine | AFP | Getty Images

Oil prices rose on Thursday as OPEC indicated that all options were on the table to balance oil markets and that it would take a decision in December on supply for next year.
Mohammad Barkindo, leader of the exporter group, did not specify if the move would mean extending a pact to rein in production to stabilize prices, but the comments appeared to nudge the market out of pessimism over U.S.-China trade talks.
Global benchmark Brent crude futures rose by 54 cents, or 0.9%, to $58.86 a barrel. U.S. West Texas Intermediate (WTI) futures were up 76 cents, or 1.5%, at $53.36.
A December meeting between the Organization of the Petroleum Exporting Countries plus allies including Russia would take “decisions that will set us on the path of heightened and sustained stability for 2020”, Barkindo said on Thursday.
“Barkindo’s comment reminds markets that if oil prices do not fall off a cliff over demand concerns, we could very see OPEC+ extend their production cuts throughout the majority of 2020,” said Edward Moya, senior market analyst at OANDA in New York.
Separately, Saudi Arabia told OPEC its monthly oil output fell by 660,000 bpd in September after major attacks on its energy facilities, while OPEC lowered its 2020 forecast for non-OPEC supply growth.
Those signals from OPEC suggested a tighter global oil supply picture, but elsewhere abundance reigned.
Price gains were curbed by a report of rising stockpiles in the United States, currently the world’s biggest oil producer.
U.S. crude stocks rose by 2.9 million barrels in the week to Oct. 4, the Energy Information Administration (EIA) said on Wednesday, more than double analyst expectations.
Additionally, OPEC member Nigeria secured a higher production target from the organization and a force majeure over exports from the key Bonny Light stream was lifted.
Venezuela will also increase its exports despite U.S. economic sanctions that have curtailed shipments as Indian refiner Reliance Industries plans to start loading Venezuelan crude after a four-month pause.
Uncertainty over U.S.-China trade talks resuming on Thursday had previously weighed heavily on the market.
Still, there has not been a sustained rally or fall in prices in recent months, though both oil benchmarks are down more than 20% from April peaks.
“The oil market is neither bullish nor bearish. It is not trending. It has no reason or excuse to trend,” said Tamas Varga of oil brokerage PVM.
“It would be stretching it to say that the market is paralysed, but it is in a stalemate. No one is willing to commit to either direction.”

Commodities | Gold | Gold Price Report: Gold slips from one-week peak on trade deal prospects

3 minutes - Source: CNBC

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Close up image of assorted gold ingots and gold coins.
Anthony Bradshaw | Getty Images

Gold prices fell from a one-week high on Thursday after a Chinese state media report suggested that China wants to reach an agreement with the United States to avoid any escalation in a protracted trade row, soothing investor concerns.
Spot gold fell 0.7% to $1,494.51 per ounce, as of 10:50 a.m. EDT (1450 GMT), having hit a one-week peak early in the session. U.S. gold futures were down 0.9% at $1,499.20.
“It is all about the tariffs. It is the he-said-she-said that whips the market back and forth. Right now you have the short term traders selling gold on the tariff news,” said Michael Matousek, head trader at U.S. Global Investors.
Chinese Vice Premier Liu He said that Beijing is willing to reach an agreement with the Washington on matters both sides care about, China’s Xinhua state news agency reported.
Earlier in the session, gold rose to $1,516.77 - its highest since Oct. 3 - on a report that the Chinese delegation was planning to leave Washington after just a day of minister-level meetings, a day earlier than expected.
Trade talks between the two countries started on Thursday.
Markets have been on edge for weeks over the U.S.-China trade tensions and recent data has pointed to further weakening in global growth.
If negotiations break down again, nearly all Chinese goods imports into the United States - more than $500 billion - could be subject to punitive tariffs by Dec. 15.
“The major concern is that there is nothing going to come out of these negotiations, just kick the can further down the road,” said Daniel Pavilonis, senior market strategist at RJO Futures.
“So, if there is some type of an agreement, depending on what type of agreement it is, you would probably see a gold sell-off, at least that would be the initial reaction,” Pavilonis said, adding “gold and silver, from a technical standpoint, look pretty bullish.”
Bullion is often used by investors as a hedge against political and financial uncertainty and has risen nearly 18% since hitting this year’s low of $1,265.85 in May, predominantly on trade tensions, dovish monetary policy by major central banks and gloomy economic growth outlook.
Among other precious metals, silver fell 1% to $17.52 per ounce.
Palladium rose 1% to $1,698.92, while platinum eased 0.2% to $890.29 an ounce.

Economy: US consumer prices were unchanged in September, the weakest reading since January

Fred Imbert

4-5 minutes Source: CNBC

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Grocery clerk James Delarosa takes inventory of the salad dressing and condiments aisle at a Publix Super Markets Inc. grocery store in Knoxville, Tennessee.
Luke Sharrett | Bloomberg | Getty Images

U.S. consumer prices were unchanged in September and underlying inflation retreated, supporting expectations the Federal Reserve will cut interest rates in October for the third time this year amid risks to the economy from trade tensions.
The Labor Department said on Thursday the flat consumer price index last month was the weakest reading since January and came as increases in the cost of food and rents were offset by decreases in the prices of energy and used cars and trucks.
The CPI edged up 0.1% in August. In the 12 months through September, the CPI increased 1.7% after advancing by the same margin in August.
Economists polled by Reuters had forecast the CPI nudging up 0.1% in September and rising 1.8% on a year-on-year basis.
Underlying inflation slowed in September following solid gains over the last three months. Excluding the volatile food and energy components, the CPI climbed 0.1% after gaining 0.3% for three straight months.
The so-called core CPI was restrained by moderated gains in healthcare costs, as well as declines in apparel, new motor vehicles and communications prices. In the 12 months through September, the core CPI increased 2.4%, matching August’s rise.
The report came on the heels of data on Tuesday showing the biggest drop in producer prices in eight months in September. Minutes of the Fed’s Sept. 17-18 policy meeting published on Wednesday showed officials viewed risks to the longest economic expansion on record “had increased somewhat.”
The expansion, now in its 11th year, is under threat from the 15-month old U.S.-China trade war, slowing growth overseas and a likely disorderly exit from the European Union by Britain. The trade war has undermined business investment and helped to drive manufacturing into recession.
The Fed cut rates in September after reducing borrowing costs in July for the first time since 2008. Economists expect another rate cut at the Fed’s Oct. 29-30 policy meeting.
The U.S. central bank tracks the core personal consumption expenditures (PCE) price index for its 2.0% inflation target. The core PCE price index rose 1.8% on a year-on-year basis in August and has fallen short of its target this year.
Economists expect inflation will pickup and breach its target in 2020 following the recent broadening of U.S. tariffs on Chinese goods to include a range of consumer goods.
In September, energy prices fell 1.4% after dropping 1.9% in the prior month. Gasoline prices declined 2.4% after falling 3.5% in August. Food prices gained 0.1% after being unchanged for three straight months. Food consumed at home was unchanged.
Owners’ equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, rose 0.3% in September after rising 0.2% for two consecutive months.
Healthcare costs climbed 0.2% last month after jumping 0.7% in August, which was the biggest gain in three years. Apparel prices fell 0.4% after gaining 0.2% in the prior month. The government early this year introduced a new method and data to calculate the cost of apparel.
Used motor vehicles and trucks prices decreased 1.6% in September after rising for three straight months. Prices for new motor vehicles dipped 0.1%. There increases in the costs of household furnishings, motor vehicle insurance, airline fares and tobacco.