Deal Or No Deal

Market movers today

The main factor driving markets is news on the US-China trade talks, which has caused rising volatility in markets over the past days due to conflicting signals from the US side (see below).

Today’s data highlight is the final Q3 GDP estimate from the euro area, which will provide more details on the sub-components of the national account. We look out for what drove the 0.2% q/q growth rate in Q3, as signs have increasingly indicated that the strong domestic demand seen so far has started to feel the pinch as well. German factory orders this morning and US initial jobless claims are also on the calendar today.

Today at 08:40 CET, the Riksbank’s Flodén is speaking on the economy and monetary policy. Per Jansson has sent a clear message (our interpretation) that he will vote for keeping rates unchanged in December. At the latest meeting, Flodén and Skingsley supported the forecast to raise rates in December. At the same time they said the data will decide. They will probably wait until after the inflation numbers next week before making up their minds, but Flodén’s comments today could move the markets.

Today, we published a piece on our top trades in the fixed income and FX space . In fixed income, we like carry trades such as mortgages vs. government bonds and periphery vs. core euro area bonds. In FX markets, we highlight six themes that we expect will drive markets in 2020 – among others, continued USD strength and Scandi divergence.

Selected market news

The main market mover yesterday was a Bloomberg article quoting US trade officials as saying that the US and China was moving closer to a phase one deal. The upbeat comments were in stark contrast to signals by US President Donald Trump, who said on Tuesday: “I like the idea of waiting until after the election for the China deal”. That Trump was likely bluffing was supported by the trade officials saying yesterday that Trump was speaking “off the cuff” and that they expected a deal to be negotiated before 15 December, when new tariffs are set to be imposed on China. The news led to a turn in risk sentiment, with stock markets and bond yields moving higher again.

We continue to believe that a phase one deal will be struck in December, as Trump badly needs China to buy US agricultural goods soon. The US election is moving closer and US farmers, who deliver critical votes in three important swing states, have been the main victims on the US side of the trade war. Without a deal to secure China buying farm goods again, it could be very hard for Trump to win the election. China has reacted very sharply to a US bill on Xinjiang going through Congress (see for example China Daily ), but there are not yet any indications that this is affecting the trade talks.

In the UK election campaign, Conservative leader Boris Johnson yesterday pledged to deliver Brexit and new tax cuts within 100 days of winning the election, which will be held on Thursday next week.

Danske Bank
Danske Bankhttp://www.danskebank.com/danskeresearch
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