• Chinese delegation refuses to talk about forced technology transfers – High-level talks are expected to last for only one day,
• Trade talks are doomed to fail from the get-go.
• AUD/JPY is down 0.30% on the soured sentiment.

South China Morning Post sources have come with a piece that has sent the Yen on a hike across the board, advancing some 30 pips vs the greenback, saying:

• US and China make no progress on key trade issues in two days of deputy-level talks, sources say.
• The Chinese delegation refuses to talk about forced technology transfers, a core US grievance in the negotiations, a person with knowledge of the meetings says.
• High-level talks are expected to last for only one day, with Liu He and his team now planning to leave Washington on Thursday.

Overnight, US stocks were elevated on a report from Bloomberg News that had suggested China was open to a limited tariff resolution with the U.S. Also, the Financial Times indicated that China had offered to increase by 50% purchases of agricultural products from U.S. farmers.

However, as ever, the headlines were conflicting with a late statement from China poured cold water over such optimism and said that the US had damaged any goodwill following the blacklisting of Chinese companies by the US State Department the prior day, announcing that Beijing has little hopes of a trade deal breakthrough this week – and seems we have confirmation now that these trade talks are doomed to fail from the get-go and its back to risk-off. AUD/JPY is down 0.30% on the soured sentiment.

Following the Wall Street close, we have had a series of Brexit headlines streaming through from various media outlets, including the following headlines.

Brexit headlines:

• EU insists no extension without new referendum or election – Telegraph
• Labour will grant UK PM Johnson general election on November 26 if Brexit isn’t delivered by Halloween – Sun
• UK PM Johnson’s leading adviser on parliament Nikki Da Costa quits – Sun

• The S&P 500 index put on 26.34 points to finish at 2,919.40, up 0.9%.
• The Dow Jones Industrial Average added 181.97 points, or 0.7%, to end at 26,346.01.
• The Nasdaq Composite climbed by 79.96 points, or 1%, to close at 7,903.74.

The Dow Jones Industrial Average, DJIA, climbed on Wednesday following early reports of a possible partial trade deal between China and the US this week. The index added 181.97 points, or 0.7%, to end at 26,346.01. The S&P 500 index put on 26.34 points to finish at 2,919.40, up 0.9%, while the Nasdaq Composite climbed by 79.96 points, or 1%, to close at 7,903.74.

Conflicting trade talk headlines

A report from Bloomberg News explained that China was open to a limited tariff resolution with the U.S.. The Financial Times indicated that China has offered to increase by 50% purchases of agricultural products from U.S. farmers. However, a late statement from China poured cold water over such optimism and said that the US had damaged any goodwill following the blacklisting of Chinese companies by the US State Department the prior day, announcing that Beijing has little hopes of a trade deal breakthrough this week.

Analysts at NAZ Bank explained that tensions between US and China appear to have eased a tad ahead of the trade talks set to resume tomorrow. "More tariffs are set to be added on October 15 and on December 1 so these may be delayed or dropped. However, no concessions are expected to be made on the tougher issues such as a reform of China’s state-led economic model."

DJIA levels

The DJIA is suppressed below trendline resistance and remains a positive session away from the 21 and 50-DMAs converging in the mid 26000s. Bears will otherwise be en-route for a test of the psychological 26000 level again. A break to the upside and through the mentioned DMA accumulating around the mid-point of the 26000s in line with the Sep lows-resistance line in the mid-26000's will open prospects back to the Sep highs through 27200.

Here is what you need to know Thursday, October 10th:

• US-China trade relationship remains as the main market driver. More headlines flood the news feeds, although some certainties are expected in the upcoming days, as trade talks are set to resume this Thursday in Washington.
• The Federal Reserve released the Minutes of its latest meeting, which failed to impress. The document showed that policymakers still see the risks coming from abroad, while don’t believe the economy is heading into a recession. Called September rate cut “appropriate,” reiterated the economy is in good shape despite risks. Among the most encouraging lines out-stands the fact that several policymakers favored keeping rates steady, as they believe that baseline economic projection had changed very little and that uncertainties would not derail the economic expansion.
• The EUR/USD pair settled around 1.0970, held within familiar levels.
• The GBP/USD pair remains under selling pressure near the 1.2200 figure, amid fading hopes of a Brexit deal before the end of the month. Headlines indicating that the EU would grant some options about the Irish backstop sent the pair up to 1.23, yet the pair changed course as the news was denied.
• Crude oil prices rallied alongside equities, but retreated from daily highs ahead of the close, weighed by the US EIA report, which showed that crude oil stocks in the US increased by 2.9 million barrels in the week ending October 4th, largely surpassing the market’s expectations.
• Cryptocurrencies recovery, with BTC/USD hovering around a critical resistance in the $8,500 price zone.

President Trump, in stark contrast to the Chinese's recent statement about how the US's goodwill has been damaged by the US Commerce Department's blacklistings, has been crossing the wires and was reported to have said that there is a really good chance of US and China making a trade deal.

More from Trump:

• Thinks China wants to make a trade deal more than he does.
• Would love to make a trade deal with China if it is the right deal.
• Any trade deal with China has to be better than 50/50 for the US.
• China has been taking advantage of the US for a long time; He told President Xi that.

FX implications:

The markets are ignoring these comments, as eyes glaze over considering it is very typical of Trump to be so bullish in the face of adversity. The comments come after the close on Wall Street, so it is unclear what his comments were intended for, perhaps in response to the Chinese pouring cold water over any hopes of a trade deal breakthrough this week and as an indirect invitation to China to come forward with a less rigid stance on the various sticking points in the negotiations to date. However, the markets are not buying it and prefer to walk cautiously into the event which will likely support the Yen with within its recent ranges across the board for the remainder of this week.

• Chinese officials: Beijing has lowered expectations for progress from US trade negotiations this week – RTRS

Chinese officials have lowered expectations for progress from US trade negotiations this week since the goodwill has been damaged by US Commerce Department’s blacklisting of 28 Chinese companies.

Yesterday, Washington announced that it would be adding 28 Chinese companies, government offices and security bureaus to a United States blacklist over their alleged role in facilitating human rights abuses in China's Xinjiang region.

FX implications

The statement has had a limited impact on markets, seeing only some tendencies towards risk assets such as gold spiking $5 on the news. The Yen has also strengthened by 0.15% on the headline.

According to analysts at Wells Fargo, the next few months will be key to the global growth outlook, with the 31 Brexit deadline and multiple possible US tariff increases to Chinese goods.

Key Quotes:

“The global economy remains under pressure, with 2019 real GDP growth looking increasingly like it will be the slowest since 2009. The weakness continues to be concentrated in the manufacturing sector as the escalation in the trade dispute between the United States and China works its way through global supply chains. The Eurozone manufacturing PMI is near lows not seen since the depths of the 2011-2012 European sovereign debt crisis, while industrial production growth in China is at its lowest point in nearly 20 years. While the service sector in most large economies continues to expand, it too has begun to feel the pain recently.”

“The fiscal policy response in developed economies has been minimal, leaving central banks to do the heavy lifting. The European Central Bank (ECB) cut rates in September and restarted its quantitative easing program, while several emerging market central banks like the Bank of Mexico and the Reserve Bank of India continued to cut rates in an effort to spur faster economic growth.”

“The next few months will be key to the outlook, with an October 31 Brexit deadline and multiple possible U.S. tariff increases looming between now and the end of the year. Against that backdrop, we expect most central banks to remain in easing mode to support their economies. Brexit and trade uncertainty appear likely to remain major issues in 2020, however, and as a result we think global economic growth will likely remain relatively slow through at least the first half of next year.”