A drone view of London's Canary Wharf financial district, two days before the government presents its critical pre-election budget, in London, Britain March 3, 2024. REUTERS/Yann Tessier/File Photo

A look at the day ahead in European and global markets from Rocky Swift

Optimism abounds in the markets that the United States and China will reach a rapprochement in London today, after a phone call last week between leaders of the world's two largest economies turned down the heat on their protracted rift over trade.

Both sides have strong incentives to ratchet down the rhetoric and find agreement as their economies remain tightly linked, although U.S. President Donald Trump has shown interest in decoupling them.

The market reacted favourably on Friday to U.S. jobs data that showed less of a slowdown than feared, temporarily easing concerns about the trade war's fallout. But that was counterbalanced today when China's dour producer price data added to evidence that the spat is taking its toll.

Asian shares rebounded sharply on Monday, reacting to Friday's exuberance on Wall Street. Equity futures pointed to a slightly lower open in Europe, while U.S. stock futures, the S&P 500 e-minis, slid 0.2%.

On the trade front, representatives from the U.S. and China, due to meet at a still undisclosed location in London, will attempt to revive a preliminary trade agreement reached in Geneva last month. Trump is threatening to impose triple-digit tariffs on Chinese goods, while Beijing's key leverage is its near stranglehold on rare earth minerals that are critical to many high-tech sectors.

Perhaps persistence is the key. Japan's chief trade negotiator Ryosei Akazawa is planning a sixth round of talks in Washington this week, Kyodo News reported.

The economic and earnings slate is practically empty today. The next major figures to watch out of the U.S. will be inflation data on Wednesday, followed later in the week by producer price figures, weekly jobless claims and the University of Michigan report on consumer sentiment. The Fed is in a blackout period ahead of its June 18 policy decision.

The markets were also keeping an eye on events in Los Angeles, where National Guard troops are facing down protesters demonstrating over Trump's immigration policies. Videos showed part of a major freeway in the city blocked by activists.

California on its own is the world's fourth-largest economy, exceeding Japan's gross domestic product, and Trump deployed guardsmen to its biggest city to counteract what the White House described as "chaos, violence and lawlessness".

Governor Gavin Newsom called Trump's reaction "the acts of a dictator".

Key developments that could influence markets on Monday:

- U.S. wholesale inventory data for April.

- Mexico reports inflation and producer price data for May.

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(By Rocky Swift; Editing by Edmund Klamann)