China Markets

Markets Hit With Deluge Of Dour Headlines As Xi’s ‘Long Struggle’ Warning, ECB’s Muller Add To Malaise

"Preserve a fighting spirit".

The weekslong rollercoaster ride for US equities continued on the first day of trading in September.

The Dow careened more than 1% lower as trade worries, Brexit consternation and data showing the US manufacturing sector contracted last month for the first time in three years combined to undercut fragile sentiment.

Although the dastardly ISM report ostensibly bolsters the case for Fed cuts, it also adds to recent doom and gloom around the domestic economy and suggests the global manufacturing malaise has, in fact, finally come home.

Donald Trump ramped up the rhetoric on multiple fronts in a series of disjointed morning tweets that included allusions to an employment apocalypse in China.

During the opening ceremony of a training program for young and middle-aged officials at the Party School, Xi reiterated the long-term nature of the threats facing his people, calling on young officials to preserve a “fighting spirit” and “strengthen their ability to struggle”, Xinhua recounted. Here’s a bit more:

Xi reminded the officials of both a hard-won historic opportunity and a series of major risks and tests the country faces. He warned of growing complexity of risks and tests which can be “unthinkably challenging,” stressed the long-term nature of various struggles, and called for the courage to fight and the mettle to win. He emphasized the art of struggle and the need to apply proper strategies and methods.

His remarks come just weeks ahead of the country’s 70th anniversary, and certainly don’t suggest Beijing is in any kind of mood to roll over or otherwise submit to Donald Trump.

Speaking (again) of the US president, he got in his daily jabs at the Fed. “Germany, and so many other countries, have negative interest rates, ‘they get paid for loaning money’, and our Federal Reserve fails to act!”, he shrieked, imploring Americans to “remember” that some countries with negative rates are “also our weak currency competitors!”

Market participants priced in more Fed easing following the ISM numbers and the Treasury rally resumed, with 10-year yields dropping as much as 6.1bp to 1.4355%. US government debt is coming off its best month since 2008.

Meanwhile, another ECB official threw cold water on the prospect of restarting net asset purchases. “I don’t think we have a strong case for reactivating QE now”, Madis Muller told Bloomberg in an interview, adding that “in addition to being disproportionate in a situation where there is no deflation risk, there is also a concern over ineffectiveness”.

Muller’s remarks come on the heels of similar skepticism voiced by Klaas Knot, Sabine Lautenschlaeger, Jens Weidmann and the outgoing Ewald Nowotny

“It seems that market expectations have gone too far”, Muller went on to say.

Exactly none of the above is positive for risk assets, and suggests equities will need to overcome a series of high hurdles to climb back to record highs hit earlier this year.


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