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Sunset Market Commentary

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US president Trump’s comment about a trade deal being postponed until after the November 2020 elections overshadowed better than expected Chinese and (final) European PMIs during early morning trading hours. Rising tensions between the US and China over Hong Kong and Xinjiang added to the already depressed sentiment. Things changed with a single headline though. Bloomberg reported that both parties are moving closer to a deal despite Trump’s hawkish rhetoric, citing people familiar with the talks. They also said Trump’s comments should not be interpreted as talks are stalling, adding that US negotiators still expect a phase-one deal to be agreed before the December 15 tariff deadline. The US president himself later confirmed talks with China are going well. Equity (futures) markets jumped, core bonds simultaneously reversed initial gains. US Treasuries underperform the German Bund with yields rising 3 bps (2-yr) to 5 bps (30-yr). The German yield curve bear steepens. Yields advance some 2 bps at the long end of the curve. The dollar tends to suffer/benefit more from negative/positive trade headlines than the euro lately. That was also the case today. EUR/USD retraced modest early morning gains after the Bloomberg report only to recover again on a dreadful ADP report (67 000 new jobs vs. 135 000 expected) and a mixed US non-manufacturing ISM (headline figure of 53.9 below expectations of 54.5 but key subseries improved further). The currency pair is currently testing the 1.11 resistance area. A break would improve the technical picture but probably requires confirmation by Friday’s US payrolls. USD/JPY is going nowhere. An obvious (trade related) spike north got erased fairly quickly. The couple is filling bids at 108.63, unchanged vs. opening.

Polls rule sterling’s world for a few weeks now and with the election date (December 12) approaching, that won’t change anytime soon, quite the opposite. The most recent ones suggest the Conservative Party at least maintains its lead over the Labour Party. Having that followed by better than expected yet still below 50 final UK PMIs was enough for investors to beef up sterling holdings. EUR/GBP is extensively testing the 2019 low (March) around 0.8475, down from 0.852/3. That March low is key support. We think a sustained break needs Boris Johnson to win the elections rather than polls just suggesting it. Cable jumps over 1.30 with ease, even near 1.31 (1.309 at the time of writing).

News Headlines

The Organization of the Petroleum Exporting Countries (OPEC) meets tomorrow in Vienna, followed by an OPEC+ meeting on Friday (including producers like Russia). Consensus seems to be building to deepen production cuts. Iraqi oil minister Ghadhban suggested Saudi Arabia would be on board. Oman’s oil minister al-Rumhi recommends extending cuts until the end of 2020. The current deal expires in March, but most officials are hinting at least a 3 month extension. Brent crude rose from $61/barrel to $62/barrel today.

The Italian national statistics bureau ISTAT trimmed this year’s growth outlook from 0.3% to 0.2%. Sharp inventory contraction is main reason for the weakness in growth, subtracting an estimated 0.8 points from the annual growth rate. Consumer spending and investments will add 0.4 percentage points. Growth is expected to firm to 0.6% in 2020, mainly because of relatively firm domestic demand.

The Bank of Canada as expected kept its policy rate unchanged at 1.75%. Future BOC decisions will weigh trade developments against domestic resilience. The loonie appreciates in a first reaction with investors anticipating a more dovish hold. USD/CAD tumbles to the low 1.32 area.

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This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.

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