Trading on global markets developed along the same lines of earlier this week. Misty and diffuse comments from Chinese and US sources on the trade talks caused some irregular price moves. However, the risk for a sudden reversal in the news flow still prevents investors to engage in LT directional positions. This morning, investors mainly saw the glass half empty as US legal action supporting the opposition/protesters in Hong Kong was seen as an additional risk, potentially complicating the trade talks. During the day, headlines turned again more constructive as China indicated that it wants to revive face-to-face talks in the very near future (hopefully before Thanksgiving) in an attempt to strike a first phase deal. There were also rumours that the US could delay the December 15 tariffs hike if no deal will be reached by then. Especially the latter caused some intraday rebound of risk assets, but the moves remain modest. Eco date were few and second tier. French business confidence data were unconvincing. The OECD in its quarterly report signaled ongoing sluggish growth for the world economy in 2020 (2.9%). US data were mixed with the Philly Fed manufacturing index slightly better than expected but jobless claims at a slightly higher level (227 000). US and German yields reversed an initial decline. US yields are currently between about 2.5 bp higher. German yields are rising 1-2 bps. 10-y intra-EMU spreads versus German vary less than 2 bp.
On FX markets, EUR/USD initially retained its cautious upward bias, but the 1.11 barrier proved too tough to overcome already today. EUR/USD returned to the 1.1070 area. The next headlines in the US-China trade talks are important for sentiment on the EUR/USD cross rate too. However, tomorrow, the EMU PMI’s and a speech of new ECB Chair Christine Lagarde might also help investors to make up their mind whether or not there is room further EUR/USD gains. USD/JPY is holding stable in the 109.60 area. Sterling gains some modest ground today after the (gradual) rise of the UK currency took a breather earlier this week. The UK labour party in its manifesto for the December 12 elections announced profound changes including a shorter work week, nationalization and public sector pay rises. UK monthly budget data also showed a further rise in the budget deficit. This shortfall might become even bigger in the future as the main parties intend additional spending after the December 12 election. However none of this factors had any lasting negative impact on sterling trading. EUR/GBP is again trading in the 0.8550 area as the conservative party seen as have best chances to secure a majority at next month’s election.
In its Quarterly economic outlook, the OECD projects that the world economy will grow by a decade-low 2.9% this year and next. Projected growth in 2021 is set at 3.1% but only if a myriad of risks (trade wars, Chinese slowdown, etc.) is contained. The OECD stresses that the global economy is stuck in a rut and that governments are failing to get grips with global challenges such as climate change, the digitalization of their economies, etc. Revolutionized government policy and clear direction are essential to overcome these damaging global headwinds rather than just presuming a cyclical upswing.
South Africa’s central bank held rates steady 6.5% today. Two out of five members voted for a 25 bps cut as inflation declined to the lowest level in 8 years. Deterioration in finances added to the central bank’s reluctance to lower rates. The MPC cut growth forecasts through 2021 and said risks to the inflation outlook are balanced. Its models forecast a rate cut in Q3 2020. The South African rand was little impacted.