Fundamental and political wrap: ECB and trade wars in focus

On the fundamental and political front to start the week, there ha snot has been a great deal to go on since during the European session, instead, markets remain fixated on trade war sound bites from over the weekend. There were signs that Trump may have softened his approach in a trade spat with China when he tweeted:

"President Xi and I will always be friends, no matter what happens with our dispute on trade. China will take down its Trade Barriers because it is the right thing to do. Taxes will become Reciprocal & a deal will be made on Intellectual Property. Great future for both countries!"

The message has been lifting the appetite for global equities across the board. The Dow is currently up 218 points, the S&P up by 0.98% and the NASDAQ 1.02% at the time of writing. DXY is down 0.27% and the US 10yrs are up by 0.26%. The CRB index is up 1.4% and oil prices are higher by  2.1%, tracking global stock prices. Markets remain focused on Sino-US trade dialogue, according to analysts at ANZ who expect that there be with keen attention on Xi Jinping’s upcoming speech later today. "Expectations are reasonably high that China’s President will re‑affirm Beijing’s ongoing commitment to reform and more open markets (while not being seen to overtly acquiesce to Washington’s demands)," the analysts explained. 

Meanwhile, there have been a number of upbeat message from various ECB officials today and the euro responded positively to ECB's annual report. There were also weekend reports that an Italian government may be formed in the next week.

Key notes from ECB's annual report and offical's comments:

• ECB’s Draghi: Confident inflation will rise, sees uncertainty over the degree of economic slack;- sees strong expansion in euro area as uncertainties endure;
• recent stock market slide has not had a significant impact on broader financial conditions.
• ECB’s Constancio: essential we make progress on banking union.
• ECB’s Draghi: confident inflation will rise, sees uncertainty over degree of economic slack;- sees strong expansion in euro area as uncertainties endure;
• recent stock market slide has not had a significant impact on broader financial conditions.
• ECB’s Constancio: essential we make progress on banking union;
• should be cautious that early, restrictive policy derails inflation recovery;
• inflation not yet completely responded to what we want to see;
• ECB's Praet says inflation developments remain subdued;
• Praet says  ample degree of monetary stimulus remains necessary;
• Praet says  monetary policy will evolve in a data-dependent and time-consistent manner;
• Praet says once the governing council judges that the three criteria for sustained adjustment have been met, net asset purchases will expire;
• Praet says  there appears to have been a disconnect between growth and inflation.
• ECB's Coeure says doesn't think growth in euro zone is slowing - France info radio;
• growth outlook does not warrant change in monetary policy stance;
• ECB's Coeure says interest rates will remain at current levels for a long time, even after end of asset purchases;
• Coeure says we will do what is necessary to bring inflation back to 2 pct, no need to change stance now.

With eyes on trade politics:

• Trump: if China hits our farmers because they think it hurts me, then we’ll make it up to the farmers.
• Doesn't know if US will impose tariffs on China or not, may be settled with negotiations – CNBC.
• White House economic adviser Kudlow: good progress is being made on recalibrating NAFTA.