Markets
Friday’s risk rally continued going into the start of a busy week. US and Chinese negotiators have agreed on key matters during trade talks in the sidelines of the ASEAN leaders summit in Malaysia. Some of the sticky points that have been resolved include a resumption of Chinese purchases of US soybeans and a delay (allegedly by one year) of the tighter Chinese export controls on rare earths. In return the US shelves the threat of an additional 100% tariff on Chinese imports. They pave the way for an extension to the trade truce when Trump and Xi meet later this week. Additional positive headlines came from Brazil, which according to president Lula is closing in on having a definitive resolution to the trade conflict. All this follows Indian newspaper Mint mid-last week reporting that the world’s 4th largest economy is closing in on a deal that would cut levies to 15% from the current 50%. The constructive trade vibes hurl US stock markets to yet another record high, unhindered by the additional 10% Canadian levy Trump introduced. The Nasdaq outperforms by rising 1.3%. European stocks add up to 0.5% (EuroStoxx50). The French CAC40 lags peers, perhaps over renewed political concerns. The Socialist Party will decide by the end of the week whether or not to topple Lecornu II. It ties the PM and his government’s fate to a wealth tax to be introduced in the 2026 budget. It would be another major win for the Socialists, after securing a suspension to the pension reform until after the presidential elections in 2027. It underscores the difficulty of addressing a spiraling debt-deficit problem in the fractured French parliament where every party can basically act as kingmaker. Moody’s last Friday downgraded the rating outlook to negative from stable for that exact reason. The OAT/swapspread (80 bps) holds steady today and remains the euro area’s highest (topping Italy). Core bond yields in general continue to bottom out, jumpstarted by Friday’s PMIs. Doing so marks an end to the diverging message brought by equity and FI markets since the beginning of October. Treasuries underperform with yields adding up to 2.7 bps in a bear flattener. European yields gapped higher at the open but currently trade more or less flat. FX markets show little direction. Looming key events such as the Fed and ECB policy meeting could act as a paralyzing force, though we doubt they’ll produce tidal shifts in the market. EUR/USD treads water around 1.164. EUR/GBP is similarly going nowhere around 0.873. The NZD and especially AUD as important trade partners to China are the key beneficiaries from the US/Sino trade thaw. AUD/USD rises to 0.655. Gold and silver drop materially with the former at risk of losing support at 4k.
News & Views
The Confederation of British Industry’s October retail sales report shows that the sector remains in a prolonged downturn with annual sales volumes falling for a thirteenth consecutive month. Persistent uncertainty ahead of the Autumn Budget is deepening the strain on retailers and other distribution firms that are still grappling with the effects of last year’s fiscal decisions. Weak demand conditions were also reflected in further sales declines across wholesaling and motor trades given overall poor consumer confidence. CBI data suggested there was a small increase in online retail sales volumes but would contract next month. The CBI measure comparing sales with a year earlier improved marginally in October, from -29 to -27 but remains firmly negative. The gauge for expected sales for the month ahead slipped from -36 to -39.
Slovak debt management agency Ardal today announced a new 12-yr EUR benchmark deal which will follow in the near future, subject to market conditions. Ardal already did one other new (15-yr) benchmark this year in February raising €3bn. They raised another combined €6.7bn via multiple regular auctions and retail bond offerings. This year’s funding need consists of €6.55bn redemptions and an expected state budget deficit of €6.7bn. Next year’s outlook suggest a somewhat lower gross bond issuance (€10bn) with redemptions (€4.9bn) and the expected budget deficit (€5.1bn) both being lower. Slovakia has an A+ credit rating at S&P (negative outlook, confirmed last Friday) and A- and the equivalent A3 at Fitch and Moody’s (both stable outlook).
 of the tighter Chinese export controls on rare earths.){kind=link}