“This latest inflation data corroborates our view that the Fed is likely to move ahead with another rate hike in December, bringing this year’s total to four,” economists at Oxford Economics wrote.

U.S. Sends Trade Warning to China

A slide in the capital markets is not complete without trade wars as Treasury Secretary Steve Mnuchin issued a warning to China, saying the world’s second largest economy better not weaken its currency as both the U.S. and China attempt to ameliorate their trade disputes. Mnuchin apprently told the Financial Times that the Treasury Department will keep China’s currency market under close watch, which could be part of a trade deal as discussions between the two economic superpowers continue.

“As we look at trade issues there is no question that we want to make sure China is not doing competitive devaluations,” said Mnuchin. “The renminbi has depreciated significantly during the year. We are going to absolutely want to make sure that as part of any trade understanding we come to that currency has to be part of that.”

The drop in the markets today come as banks like Citigroup and Wells Fargo are scheduled to report third quarter earnings later this week. A FactSet poll of analysts reveal a 19% rise in third quarter earnings is expected, but the fear of trade wars could keep investors fretting in the coming quarters.

“There are just too many concerns about the rise in input costs,” said Art Hogan, chief market strategist at B. Riley FBR. “Ongoing concerns about the stronger dollar and trade are being input into corporate guidance, and that is not good.”

“This goes back to the assumption that the market made wrongly … that once we got NAFTA 2.0 done, we’d pivot to China,” added Hogan. But “the rhetoric on China has only gotten worse, not better.”

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