Stocks climb on trade hopes, bond yields rise ahead of European Central Bank

European stocks closed lower as London lags; financials feather

European stocks closed lower as London lags; financials feather

"The market has been sensitive to any developments on the China-U.S. trade war front and this would be consistent with that", said David Joy, chief market strategist at Ameriprise Financial in Boston.

That was tamped down somewhat by White House trade advisor Peter Navarro on Tuesday, when he urged patience about resolving the two-year trade dispute between the world's two largest economies and said to "let the process take its course".

It's a situation that has created deep internal divisions at the European Central Bank, the Bank of Japan and the US Federal Reserve as officials debate how to confront a global slowdown with limited room to cut interest rates, and with elected officials pursuing policies that may be doing harm, at least in the short run. "If they're not, that kind of changes the calculus a little bit".

Expectations for a 25-basis-point cut by the Fed at its next meeting stand at 88.8%, according to CME's FedWatch, down from 92.3% on Tuesday.

Investor focus for now is centered on the European Central Bank's meeting on Thursday.

With interest rates plumbing record lows in many countries and the effectiveness of further bond-buying muted by already record-low borrowing costs for governments, attention has turned to increased public spending or tax cuts to fire up growth. Now, "if the European Central Bank further loosens the monetary policy reins, this could, in turn, step up pressure on the Fed to act".

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The European Central bank meets this Thursday, and European officials noted their place in the queue as they contemplate pushing the euro area's target interest rate deeper into negative territory.

US data on Wednesday showed that USA producer prices unexpectedly rose in August and underlying producer prices rebounded, but that data will not change financial market expectations that the Federal Reserve will cut interest rates again next week to support a slowing economy. The BOJ meets the next day.

However, concern has been building that ECB policymakers and other global central banks are reaching the limits of stimulus policies, especially those with negative interest rates and sub-zero long-term sovereign bond yields. The urge for food for much less standard steps, like extra aggressive bondbuying, is untested outdoors of disaster circumstances in the U.S., and stays controversial elsewhere.

Now, they're pulling the opposite means, significantly in the U.S. the place efforts to guard native industries utilizing tariff and commerce restrictions, in line with many economists, have weighed on world development. In his criticism of the Fed, for example, Trump has encouraged rate cuts to try to keep the value of the dollar down - a troubling argument for Europe, in particular, with Germany perhaps already in recession and hoping to maintain the trade surplus that drives its economy.

Goldman Sachs analysts this week stated the possible final result, even with the anticipated Fed and different motion, is a form of sluggishness that will not contain a recession as a lot as subpar efficiency - a reminder that, at the same time as some attempt to reverse many years of globalization, its affect stays. "We don't live in a bubble".

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