Caution Prevails as China’s Xi Delivers Key Speech

By: Adam Haigh and Andreea Papuc | Oct 17 2017 at 11:35 PM | International Trade

A sense of caution gripped markets as China’s President Xi Jinping spoke at the opening of the Communist Party Congress, with investors assessing the magnitude of recent gains in global equities. Asian equities were mixed, despite fresh records for U.S. stocks, while the dollar rally from the start of the week continued to peter out. Though analysts expect little in the way of substantial reforms to emerge from the twice-a-decade congress in Beijing, investors will focus on any comments about deleveraging, capacity reduction and the global belt-and-road infrastructure plan. Xi said China was pushing through reforms in a systematic way as he warned of “severe” challenges in a speech that kicked off the week-long event and was still going after 2 1/2 hours. The Bloomberg dollar index edged lower. Negotiations over the future of the North American Free Trade Agreement were extended into the first quarter of 2018 in a bid to resolve differences after Canada and Mexico rejected what they see as hard-line U.S. proposals. That sent the Mexican peso more than 1 percent higher on Tuesday and it was holding those gains in early Asian trading. Markets have been stable with a lack of volatility going into the start of the Communist Party Congress. However, in the past the meetings coincided with an average 3.3 percent drop on the benchmark Shanghai Composite Index and a further 3.3 percent in the following five trading days. U.S. President Donald Trump’s choice for the next chair of the Federal Reserve, which has been a focus for markets in recent weeks, will be unveiled before he leaves Nov. 3 for an 11-day trip to Asia and Hawaii, a person familiar with the process said Tuesday. John Taylor was said to have impressed Trump in an interview, buoying gains in the greenback earlier this week given the assumption by many that he would favor tighter policy. Trump also tried to rally support for his tax plan in a speech on Tuesday. The pound reversed losses that came after Governor Mark Carney said the Bank of England is making contingency plans for a “hard” exit from the European Union. The euro also recovered after falling when Spain cut its growth forecast for 2018 to 2.3 percent from 2.6 percent, acknowledging the impact of an escalating political crisis in Catalonia, a region that accounts for a fifth of the country’s output. The Spanish state is turning up the pressure on separatist leaders to drop their push for independence. Markets in Malaysia, Singapore and Sri Lanka are closed for holidays. Here are some key events coming up this week:

Among Fed speakers lined up this week are New York Fed President Bill Dudley and Dallas Fed President Robert Kaplan on Wednesday.
European Central Bank President Mario Draghi speaks on Wednesday at the “Structural Reforms in the Euro Area” conference in Frankfurt.
China releases data for GDP, industrial production and retail sales on Thursday.

Here are the main moves in markets: Stocks

Japan’s Topix index was little changed as of 12:30 p.m. in Tokyo and Australia’s S&P/ASX 500 Index was up 0.1 percent, while South Korea’s Kospi index slipped 0.1 percent.
Hong Kong’s Hang Seng Index was flat, while the Shanghai Composite Index rose 0.3 percent.
Futures on the S&P 500 Index were little changed. The underlying gauge rose 0.1 percent to close at a fresh all-time high in New York.
The MSCI Asia Pacific Index added 0.1 percent.
The MSCI Emerging Market Index rose 0.1 percent after dropping 0.5 percent in the previous session.

Currencies