Markets Nowadays: China uncertain, Boris boosted


Sterling has been the largest mover as Boris Johnson pulls ahead in the polls.


Today’s podcast

Overview: Mixed feelings

  • US equities consolidate current gains, EU equities drop a bit of ground
  • China expanding pessimistic on trade deal prospect -CNBC
  • USD offers up some ground as UST yields slips a handful of bps
  • Fed Powell and President Trump have a cordial meeting
  • GBP outperforms as polls indicate Conservatives have gained additional help
  • Treasurer Frydenberg defends surplus objective on present demands and LT demographic challenge
  • Today’s highlights: RBA Minutes and RBA Kent and Fed Williams on speaking duties

You are not the only one particular with mixed feelings, you are not the only ship adrift on this ocean,

This coming and going is driving me nuts – The Rolling Stones

Often lyric quotes are just best at capturing the industry mood. Yesterday the smoke signals from the US-China trade drama have been suggesting adore was in the air, but as it has been the case for what now feels like an eternity, overnight signals recommend otherwise. Following a soft opening, US equities are now back in optimistic territory though the USD is broadly weaker not helped by a drift reduced in UST yields. GBP has been the outperformer in G10 though AUD and NZD are basically unchanged.

Offered the empty calendar, value action at the get started of the week in the northern hemisphere was unsurprisingly muted. But at the margin, the industry mood has turn out to be a small sombre on the back of a CNBC report noting that China was expanding pessimistic about a trade deal. The Chinese government is concerned that Trump continues to insist publicly that he has not agreed to scrap some tariffs, in spite of the two sides reportedly reaching an agreement to that finish earlier in the month. According to the report, China was also monitoring the impeachment hearings and questioning regardless of whether it was very best to delay an agreement till there is additional clarity on the political outlook.  Separately, Reuters reported that the US was set to extend a 90 day exemption for US firms to do organization with Huawei.

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It is definitely really hard to make sense of the continual stream of US-China trade headlines blowing hot and cold air, that stated our preference remains on placing additional weight on comments coming straight from officials dealing with the trade negotiations and on this score there is nothing at all to contradict the view that the US and China are nonetheless functioning towards striking a deal. The negotiations stay ongoing, a Phase 1 deal appears additional probably than not, but as usual the devil will be in the detail. The additional tariff roll backs we get, the superior for industry sentiment and worldwide development outlook.

The CNBC news weighed on European equities and dampened the mood at the opening of the US session. European equities have been unable to completely recover with all main Pan European indices closing the day with modest losses. The FTSE 100 was one particular exception up .07% as polls pointed (additional beneath) at PM Johnson’s Conservative celebration gaining additional help.  Brexit-sensitive shares have been also up right after BoJo confirmed all conservative candidates have pledged to back his deal to exit the EU. As we are about to press the send button, all 3 main US equity indices are now back trading in optimistic territory, therefore additional than reversing the CNBC souring trade news.

UST yields are about 2bps reduced along the curve with the 10y tenor at present trading at 1.809%. 10y Gilts are two.1bps greater at .75% and 10y Bunds are unchanged at -.336%.

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The modest move reduced in UST yields has played into a mild but broad USD weakness with the DXY index -.26% (now @97.793) and BBDXY -.12% (now @1201.30). The USD also slipped a small on the back of news that Fed Chair Powell met President Trump at the White Residence. The Fed released a statement post the meeting saying that Powell’s comments “were constant with his congressional hearings final week” and that he “did not talk about his expectations for monetary policy”.

GBP has been the major outperformer, up .52% and at present trading at 1.2955. The pound has been supported by poll news displaying a additional drift to the Conservatives. The newest YouGov poll performed 14-15 November showed a 45-28 Conservatives-Labour split, net 17%, up from 14%, polled 11-12 Nov.  Poll averages methodology point to a comfy Tory majority with a 60%-plus likelihood of a Tory outright majority with 350 seats. Speaking at the CBI conference, PM Johnson announced that his government would not proceed with cutting the corporation tax from 19% to 17% and as an alternative devote the £6bn to the NHS.

The AUD (@.6811) and NZD (@.6401) are small changed relative to levels this time yesterday. Each antipodean currencies have shown small reaction to the move up in USD/CNY from 7.009 to 7.0250. The move was initially instigated by news that the PBoC reduce the 7-day reverse repo price to two.50% from two.55%, the initially reduce given that October 2015 and initially move up or down given that March 2018. The decline in the repo price follows the reduce in the 1-year MLF from three.30% to three.25% in mid-October, and appears to presage a fall in the Prime Loan Price from the present four.30% as early as this Wednesday’s month-to-month PLR set.  The CNBC US-China trade news also played into the softer CNY move overnight.

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This morning the AFR is operating an report on Treasurer Frydenberg’s important messages from his planned speech just before the Committee for Financial Improvement of Australia nowadays. The report notes that Treasurer tends to make the case for maintaining the price range in surplus not just to cope with present demands but also simply because of the lengthy-term challenges, specially the “economic time bomb” of an ageing population. Ahead of the mid price range in December the Treasurer is signalling that we shouldn’t count on a major splash in spending. The report adds that that neither rapidly-tracked revenue tax cuts nor the promised investment allowance for organization will be in the MYEFO.

Coming up

  • RBA Minutes, RBA Kent requires element in a panel on Benchmarks, US Housing Begins and Fed Williams
  • The RBA minutes are probably to repeat that the Bank is assessing earlier cuts as it remains ready to ease additional. The Minutes must echo the November Statement on Monetary Policy, exactly where the Board noted low prices meant it was approaching the limits of traditional policy, bringing closer the point at which “other policy alternatives may well come into play”. The minutes could elaborate on these limits, though we consider it additional probably they will be covered in Governor Lowe’s 26 November speech on unconventional policy.
  • Fed Williams speaks at a Capital Markets meeting in Washington like a Q&ampA session with each audience and media.

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