US to back down on trade war issues?

Kia ora,
and welcome to Wednesday's Economy Watch where we follow the economic events and trends that affect New Zealand.
I'm David Chaston and this is the International edition from Interest.co.nz.
Today we lead with news of a growing sense the US:China trade war might be heading for a resolution.
But first, the overnight dairy auction was a positive one with prices rising +3.7% in US dollar terms although undermined somewhat by the rising exchange rate so that in New Zealand dollar terms prices are up only a bit more than half that, up +2.1% from the prior auction. However, the rises justify the recent hike in the payout indication. Compared with this time last year, prices are up +20% in US dollars, up almost +25% in New Zealand dollars. Leading the way are the core milk powders with WMP up +3.6% today and SMP up +6.7%.
The US trade deficit was little-changed in September, but remains stubbornly high at an annual -US$653 bln, a rise of 4%. In the month, the deficit with China decreased only marginally to -US$28.0 bln. Exports decreased -US1.0 bln to US$9.0 bln and imports decreased -US$1.9 bln to US$37.0 bln. Both are tiny changes. Overall, the annual trade deficit with China remains high at -US$350 bln or more than half the total deficit even after the US imposed substantial tariffs. In the end, China has kept on supplying orders from US importers, and American customers have been paying the tariffs.
The trade talks are ongoing, and it looks like the Americans are ready to compromise. The face-saving seems to be a deal on China controlling the illicit drug trade and in return the Americans will roll back tariffs on US$112 bln of goods trade. If that transpires, the US will have gained little from the skirmish.
The widely watched US report on the services PMI has this sector expanding modestly and slightly faster, suggesting that GDP is growing at a modest +2.1%. The other similar survey didn't notice the uptick however.
But none of this data has set Wall Street alight - today it remains near record highs but is flat-lining. That follows better gains in Europe, and even better gains in Shanghai, Hong Kong, and especially Tokyo which was up an impressive +1.8% yesterday. All three markets are sensing a positive end to the US:China trade war that will benefit them.
In China, their central bank cut the interest rate on its medium-term lending facility for the first time since early 2016, as policymakers work to prop up a slowing economy. The cut was -5 bps to 3.25%.
The private survey of China's services PMI was broadly stable and positive with a small gain in the expansion level.
 
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In Australia, their October services PMI slipped back sharply, indicating they have no expansion in that sector now. (However, another similar survey suggested there is still some expansion going on. Either way, its modest at best.) The latest Aussie consumer sentiment index shows a modestly positive situation.
Following the 'modest' theme, their central bank held its benchmark rate in yesterday's review in what was a somewhat upbeat assessment of Australian economic prospects. Rate cuts and QE seem to be off the agenda there now.
The UST 10yr yield is rising again, now at 1.86% and its highest level since August. 
Gold has slumped overnight, down more than -US$25 to US$1,484 which is a chunky -1.7% dive in a day.
US oil prices are firmer again, now just over US$57/bbl. The Brent benchmark is just under US$63.
The Kiwi dollar has slipped back a little to 63.8 USc but that is where it was a week ago. On the cross rates we are -½c lower at 92.5 AUc. Against the euro we are little-changed at 57.6 euro cents. That puts the TWI-5 down at 68.8.
You can find links to the articles mentioned today in our show notes.
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