Stock markets rallied yesterday after US President Donald Trump’s top economic adviser hailed “positive” trade talks with Chinese negotiators.

“As the new week kicks off, stocks are in demand amid increased optimism over US and China reaching a trade deal and as investors anticipate stimulus measures to shore up slowing eco-nomies,” noted Fiona Cincotta, analyst at City Index trading group.

Washington and Beijing are working to revive talks aimed at ending a trade war that has roiled world markets, Trump’s chief economic advisor Larry Kudlow said.

The US President himself weighed in on Twitter, saying, “We are doing very well with China, and talking!”

In another tweet, he added that the US economy was “poised for big growth after trade deals are completed,” and that China is “eating Tariffs.”

There remains a high level of concern about the global outlook and particularly the United States economy after yields on 10-year US Treasury bonds last week slid below that of the two-year note, while the 30-year yield fell below two percent for the first time ever.

This so-called “inversion” – when short-term interest rates are higher than longer-term ones – is viewed as a harbinger of recession.

A majority of economists expect a US recession in the next two years, but have pushed back the onset, according to a survey yesterday from the National Association for Business Economists.

The German economy could, meanwhile, enter a recession in the third quarter because of a “sharp” decline in industrial production held back by international trade tensions, the Bundesbank warned yesterday.

“The economy could contract again slightly,” Germany’s central bank said in its monthly report, following a 0.1-per cent decline in gross domestic product in the second quarter. 

According to Germany’s Der Spiegel newspaper, Angela Merkel’s government is ready to boost public spending.

China has, meanwhile, announced an interest rate reform that it said would lower borrowing costs for companies.

“The week is off to a pleasant start, with traders seemingly buoyed by Chinese lending rate reforms and the prospect of German fiscal stimulus,” said Oanda analyst Craig Erlam.

In foreign exchange, the pound dropped on reports the UK government expects that a no-deal Brexit on October 31 could cause serious food, fuel and medicine shortages.

The government’s leaked readiness report found British businesses remain largely unprepared for no-deal – despite a Bank of England survey in March finding around 80 per cent judged themselves ready.

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