U.S. Equities Slump as China Trade Meeting Looms

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(Bloomberg) — U.S. equity indexes slumped as traders tried to gauge the outlook for a trade deal between China and the Trump administration. Treasuries slipped and the dollar gained.

The S&P 500 Index headed lower in the afternoon after veering between small gains and small losses for most of the day in light volume. Sentiment got a boost on speculation that China is ready to do a deal, while pessimists focused on a report that senior Chinese officials have indicated the range of topics they’re willing to discuss at upcoming talks has narrowed considerably.

The Stoxx Europe 600 index climbed as foodmaker and telecom companies advanced. The pound dipped as European leaders cast doubt on reaching a Brexit agreement in time for the U.K.’s Oct. 31 deadline. The dollar strengthened.

In the wake of a slew of weak data and with protectionism portrayed as the main impediment to global growth, investor focus will return to foreign trade this week as Chinese Vice Premier Liu He and an entourage of officials head to Washington to resume talks with their U.S. counterparts. As economic indicators flash warnings, traders have ramped up bets for further Federal Reserve rate cuts. They’ll search for new clues on the policy path when minutes from the latest Fed meeting are released in coming days.

“Given the high level of uncertainty that’s out there and the cross-currents — the cross-currents being escalating geopolitical risks on the one hand and increased monetary easing on the part of the world’s global central banks — it’s really difficult at this point to determine which force is going to gain the upper hand,” said Ed Campbell, a portfolio manager and managing director at QMA.

Japanese equities closed little changed, while Shanghai markets are yet to re-open after holidays. Hong Kong was also shuttered for a holiday, leaving traders with limited options to respond — or not — to escalating violence in the city, where protesters set fires and vandalized train stations and banks over the weekend. The yuan dropped in offshore trading by the most since late September.

Elsewhere, West Texas-grade oil steadied following its biggest weekly decline since July.

Here are some key events coming up this week:

  • Chinese Vice Premier Liu He visits Washington for trade talks with his U.S. counterparts.
  • Fed Chair Jerome Powell speaks Tuesday on the final day of NABE’s annual conference in Denver; on the following day, minutes are released on the last policy meeting of the Fed’s rate-setting committee.
  • Chinese President Xi Jinping and Indian Prime Minister Narendra Modi reportedly will meet at an unofficial summit.
  • The U.S. releases a key measure of inflation on Thursday.

Here are the main moves in markets:

  • The slipped 0.4% as of 2:53 p.m. New York time.
  • The Index climbed 0.7%.
  • Japan’s index was little changed.
  • The Bloomberg Dollar Spot Index rose 0.2%.
  • The pound slipped 0.3% to $1.2299.
  • The euro was little changed at $1.0975.
  • The Japanese yen slipped 0.3% to 107.29 per dollar.
  • The weakened 0.2% to 7.1292 per dollar.
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