Market movers today
Focus continues to be on news on the US-China trade front as we close in on a deal and meeting between US President Donald Trump and Chinese President Xi Jinping. When we get a date for the summit between the two it should be clear a deal will be made.
The National People’s Congress in China that kicked off overnight will also be watched for any announcements on new stimulus and signs on the reform side. Some first hints regarding this overnight; see below.
On the data front, we have service PMI and retail sales out of the euro area and ISM non-manufacturing and new home sales in the US. The service sector has generally held up well lately whereas the weak link globally has been the manufacturing sector.
In Sweden, it’s time for service PMI, industrial orders and our own home price indicator (tenant-owned flats in Stockholm), see page 2.
Selected market news
Risk sentiment was weighed down by Chinese announcements of lower growth targets despite new stimulus overnight (see below). Overnight, the Reserve Bank of Australia (RBA) kept its cash target rate unchanged at 1.50% as widely expected. The policy rate has been unchanged for the past three years as Chinese deceleration and a weak property market are taking their toll on the Australian economy. Meanwhile, whereas the Japanese services PMI rose to 52.3 (from 51.6), the Chinese Caixin PMI fell to 51.1 (from 53.6), which was somewhat weaker than expected (53.5). This further helped dampen risk appetite.
Equities posted losses in both the US and Asian sessions, with the Dow Jones industrial down close to 0.8% while the Nikkei was 0.6% lower on the day, at the time of writing. The USD has continued to strengthen with EUR/USD below 1.1350, even if the uptick in US yields over the past week came to a halt with the 10Y Treasury yield closing around 2.72%. Brent crude oil steady around USD65.50/bbl while copper prices – a good indicator of Chinese sentiment – recovered a tad.
Ahead of the National People’s Congress, Chinese premier Li made a series of announcements overnight. First, the Chinese authorities released new GDP growth targets, which were lowered to the 6.0-6.5% range for 2019 (vs 6.5% for 2018), i.e. accommodating a continued deceleration in growth. At the same time, it was also underlined that ‘prudent’ monetary policy and ‘proactive, stronger, and more effective ‘fiscal policy will be pursued going forward with a target budget deficit of 2.8% of GDP (vs 2.6% last year). Further, VAT cuts were announced and significant tax relief was pledged for the industrial sector with tax and social security fees set to be reduced by CNY2tr. On the whole, this suggests that China is preparing for a continued slowdown in growth, but also that the Chinese authorities remain ready to stimulate to avoid a hard landing, even with a trade deal in sight.
