Markets were whipsawed by conflicting trade headlines all week but today the focus went to the data for a change. German growth has been confirmed at 0.1% q/q and details showed increased government spending (0.8% q/q) and private consumption (0.4%) while capex contracted with another 0.1% q/q. European PMI’s had a real potential to provide investors with some guidance and confirmation of the European economy bottoming out. On the bright side, manufacturing business confidence recovered for a second month in a row, especially in Germany (43.8 vs. 42.8 expected and up from 42.1). The services sector however showed further signs of contagion, slipping unexpectedly to 51.3 in Germany and 51.5 in the EMU as the rise in important sub components such as new orders and employment is slowing unabatedly. Although the continued, admittedly slow, bottoming out in the manufacturing sector provides a ray of hope that the worst is over (which was also noted by Bundesbank’s Weidmann), markets mainly focused on the (much bigger) services sector. European stocks reversed an intraday gain only to recover gradually on a few constructive trade headlines coming from Trump. The US president in the same interview also declined to say if he will sign the Hong Kong bill, instead voicing support for the protesters but adding that he also wants a trade deal. German yields slipped some 3 bps at the longer end of the curve. Peripheral spreads add about 2 (Italy, Greece) to 3 bps (Portugal). US yield declines are limited to 1.5 bps across the curve. EUR/USD kept losses fairly limited following the PMI’s but extended its trajectory south with the coming of US investors. The couple is currently changing hands at around 1.1047. USD/JPY is going nowhere in the 108.6 area.

Sterling had a rather uninspiring five days but that changed at the very end. In October, the main reason for the PMI business confidence not to fall below the neutral 50 handle was thanks to an inventory build-up in the run-up to the previous Brexit deadline. But the November print faced a backlash, unexpectedly slipping in contraction territory across all sectors (services 48.6, manufacturing 48.3, composite 48.5). It was the worst reading since July 2016. Despite the fact that substantial progress in Brexit has been made, companies mentioned uncertainty about the future trade relationship with the EU weighing on sentiment. The (uncertainty surrounding) UK snap elections were also a major drag. According to IHS Markit, the October and November PMI currently suggest a 0.2% economic contraction for the fourth quarter. The pound took a hit. EUR/GBP went for a test of the 0.86 area but a sustained break didn’t occur (0.8598). At the current stage, the prospects of the Conservative Party winning the elections rather than Labour prevent sterling from losing major ground. Cable slipped from the low 1.29’s to 1.286 currently.

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News Headlines

South Korea announced that it will suspend its plans to quit the General Security of Military Information Agreement, an intelligence sharing deal with Japan. South Korea had announced to stop the deal due to a dispute related to World War II. The dispute also hampered trade relations between the two countries. Japan already said it hoped start talks on export controls with south Korea.

In a speech ECB President Christine Lagarde didn’t elaborate much on the currency ECB monetary policy stance. In line with calls from Mario Draghi, she advocated cooperation with the governments. They are called to make investments that will support both domestic supply and demand in the future. In this respect, public investment should also be stepped up to ease the burden on monetary stimulus. The new ECB chief especially mentioned that there is a ‘cross-cutting case for investment in a common future that is more productive, more digital and greener’.


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