A fragile sense of optimism is gracing European markets at the open on Wednesday, with stocks poised to climb despite a dramatic new trade war gambit from the White House and a worrying deflationary signal from China.
This resilient mood is a testament to the market’s singular focus on one thing: the prospect of an imminent interest rate cut from the US Federal Reserve, a hope that will face its ultimate test in the next 48 hours.
Early indications point to a positive start across the continent. IG data suggests Germany’s DAX will open 0.46 percent higher, with France’s CAC 40 and Italy’s FTSE MIB also tracking gains of around 0.3 percent.
A new front in the global trade war
This bullish open comes in the face of a startling new geopolitical development.
Overnight reports have emerged that US President Donald Trump has asked the European Union to join his economic pressure campaign by hitting China and India with tariffs of up to 100 percent over their continued purchases of Russian oil.
The move, designed to turn up the heat on Moscow, risks further destabilizing global trade relations and opening a new, unpredictable front in the ongoing conflict.
The inflation gauntlet: a verdict awaits
While the trade news is a significant wildcard, the market’s immediate attention is fixed on the United States, where a crucial two-day volley of inflation data is about to begin.
The producer price index is due later today, a key prelude to Thursday’s more closely watched consumer price index reading.
Economists surveyed by Dow Jones expect the reports to show a steady, if stubborn, level of inflation. If those numbers land in line with estimates, it will clear the final hurdle for the Federal Reserve to deliver another rate cut at its high-stakes meeting next week, a prospect that has been the primary engine of the recent market rally.
A mixed picture from the east
This tense anticipation follows a mixed session in the Asia-Pacific region, where investors were busy digesting the latest inflation data out of China.
Consumer prices in the mainland fell 0.4 percent year-over-year in August, a deeper drop than economists had expected and a clear sign that deflationary pressures continue to haunt the world’s second-largest economy.
Despite this worrying signal, most Asian markets managed to rise, taking their cue from a resilient session on Wall Street.
As Europe prepares for its own session, with earnings from giants like Inditex and Associated British Foods on the docket, the market is caught in a delicate balance, weighing the hope of a dovish Fed against a world of simmering risks.
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