Market movers today
Markets will continue to watch US-China trade talks closely and any signals on the phase-one deal, see US-China trade – A cautious note on the phase-one deal – and what’s next , 16 December.
Otherwise the euro area Flash PMIs for December will take centre stage today. The manufacturing PMI rose for the second month in a row in November and we look for a further increase in December as more signs of a global recovery are emerging.
The US will also release preliminary PMI manufacturing and in contrast to ISM manufacturing, PMI has seen a lift in recent months. The regional Empire index will add a further piece to the business cycle puzzle.
Following the landslide Conservative win, PM Boris Johnson is finalising his cabinet reshuffle and will appoint top ministers today, before outlining his government programme in the Queen’s Speech on Thursday. After the GBP rally last week, further Sterling appreciation from here will likely require an improvement in the UK macro outlook as well. UK flash PMIs for December released today will give some clues whether the economy can shrug off its recent lethargy.
Rest of the week focus turns to Riksbanken, which is expected to hike rates by 25bp and the Norges Bank meeting, where we look for a message of an extended period of unchanged rates. Both meetings take place on Thursday. Apart from PMIs today there are no big data releases on the global front this week.
Selected market news
After some conflicting reports, both China and the US officially confirmed the landing of a phase one deal and more details of the agreement came to light. China has committed to buy at least USD40bn of US agricultural goods annually, to tighten protection for US intellectual property, to ban forced technology transfers from US companies and to refrain from competitive devaluations. In return the US cancelled the planned tariff hike this Sunday and agreed to cut tariffs on USD120bn of Chinese imports that were introduced in September to 7.5% from 15% (tariffs of 25% on some USD250bn of Chinese imports remain in place). It is expected that the agreement will be signed in January before talks about the more thorny issues will start in a phase two deal. Although a bumpy road still lies ahead, we think the worst of the trade war probably lies behind us, see US-China trade – A cautious note on the phase-one deal – and what’s next .
Markets cheered the switch from escalation to de-escalation on the trade front and the removal of two prominent downside risks to the global economy led to a clear performance across cyclical currencies in DM and EM space. This morning, the People’s Bank of China set its daily reference rate for the yuan at the strongest level since early August. That said, some mild scepticism remains about the signing of the deal and Asian equities point to a more mixed start to the week, while US Treasury yields edged up to 1.84% after falling 7bp on Friday.
