Trading in global markets yesterday remained hostage to ongoing diffuse headlines on the progress (or the lack of it) in the US-China trade talks. Early in the session, the US political action to support the pro-democratic opposition in Hong Kong was weighing on global sentiment. Later, headlines turned more constructive. Some sources suggested that the December 15 next wave of tariff hikes might be delayed if no deal is reached at that time. On the other hand, Chinese officials signaled that the country was prepared for a new round of face-to-face talks in the very near future. However, for now visibility on the outcome of potential meetings remains highly uncertain, leaving investors in some kind of no man’s land. USD equites lost marginal ground, but stay within reach of the all-time top levels. Core (US and German) yields trended higher throughout the day. The move was partially order driven and technical in nature, but a substantial rise of the oil price probably also played a role. US eco data were mixed and had little impact on trading. The US yield curve rose 2.3 bp to 3.0 bp with the short end slightly underperforming. German yields rose between 1.6bp (2-y) and 2.4bp (5-y). Trading in the major FX cross rates was also paralyzed by the uncertainty on the upcoming developments on the trade talks. EUR/USD came within reach of the 1.11 barrier, but the test was rejected (close at 1.1059). After initial softness USD/JPY held a tight sideways range to close at 108.64. Sterling initially traded strong despite a Labour party manifesto that most consider as potentially market unfriendly and data indicating a rising budget deficit. However, the initial sterling gains could not be sustained. EUR/GBP closed the day little changed at 0.8566.

This morning, the lack of concrete guidance from the trade talks still causes low volume, mixed trading. Japanese CPI was close to expectations (0.7% Y/Y ex fresh food & energy). Japan November PMI’s rose marginally, but as usual with little impact on the yen. (USD/JPY 108.60/65 area). The Aussie dollar (AUD/USD 0.6790) hovers near week lows after soft PMI’s but with no further losses. EUR/USD stabilizes in the 1.1065 area. Contrary to what was mostly the case earlier this week, the eco data might have some role to play for global trading today. German and EMU PMI’s are expected to bottom or even slightly rebound from recent very low levels. Markets will also keep an eye at a speech of Christine Lagarde at the European banking Congress in Frankfurt. However, it isn’t sure she will elaborate on monetary policy. Even so, the absence of negative trade headlines and constructive EMU data might support a (guarded) rise in core/EMU yields. EUR/USD might try a second test of the 1.11. Sterling held strong of late, but the UK currency probably also needs more concrete news on the elections to break out of the 0.8520/0.86 ST consolidation pattern.

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