Market movers today
Markets continue to digest the US-China phase-one deal with the de-escalation fuelling more optimism for global growth in 2020.
It is a quiet day on the data front with only tier two data. We will get the UK labour market report, US housing starts and US industrial production.
There will also be speeches by the Fed’s Kaplan (non-voter, neutral), Williams (voter, neutral) and Rosengren (voter, hawkish).
Selected market news
Global risk sentiment continues to be boosted by the de-escalation of the trade war between China and the US late last week. Asian equities reached the highest level since mid-2018, despite little new news about the prospective deal between the two countries. The Chinese South China Morning Post reports this morning that China faces ‘a huge challenge’ in living up to US trade promises. S&P futures began the day lower by 0.3% but erased the losses to trade flat on the day. Chinese shares in the green with their major indices up 1%. We see reasons to be cautious about the prospects of the two sides getting over the finish line and see bumps on the road in the coming talks toward finalisation of the deal possibly in early new year (see our reflections here: US-China Trade: A cautious note on the phase-one deal – and what is next , 16 December).
In Europe, according to UK news , Boris Johnson intends to implement in law that the UK cannot extend the transition period. This supports our view that the no-deal risk is still present as Boris Johnson will not exploit his huge majority to be flexible on the end-2020 deadline for negotiating a trade agreement with the EU. This new legislation will eliminate the option of extending the transition by two years. In fact, this may at the end of the day turn out to be pure political symbolism, as the law can always be amended, but it shows Johnson is intent on honouring the Tory manifesto commitment to terminate the transition in just over a year from now.
The PMI preliminary releases for December yesterday were a mixed bag. Both the German and French manufacturing PMI disappointed, implying that the euro area manufacturing PMI broke its recent uptrend and fell back to 45.9 from 46.9. Weaker output and employment indices drove the move. There are still rays of light on the services front, where activity remained robust and incoming new business continued on an upward trend that bodes well for 2020. The UK PMI manufacturing fell further into contractionary territory declining to 47.4 in December, the US manufacturing PMI remained stable at 52.5, while the service PMI edged slightly higher. Hence, globally the service sector continues to remain the stronger side, while the manufacturing sector in advanced countries continues to be challenged by the global uncertainty. For a presentation of our global view.
