No news is good news was the theme into the end of the week as Sino-US trade chatter was limited. Trade data released over the weekend showed the US tariffs already in place have impacted China’s exports which were lower than expected in November. Interestingly, shipments to the US plummeted significantly, against market expectations for a rise ahead of Christmas. On the subject of trade, Tariff Man Trump imposed steel tariffs on Argentina and Brazil, and retaliated to France’s digital tax. The President also enacted the Uighur Act, sanctioning a number of Chinese officials; China feels this is an interference in the nation's internal affairs. This along with the Hong Kong Bill will no doubt hamper any Phase 1 developments, and we have the next lot of tariffs due on Sunday.
The surprise US nonfarm report at the end of the week continued to support risk assets. The nonfarm reading came in at 266k versus expectations for 180k, unemployment dropped to 3.5% and average hourly earnings rose to 3.1% yoy, with some upward revisions. These positive readings will no doubt lend support to the content Fed, who gather for their last meeting of the year, in a couple days. In terms of other keys data, although the Markit US manufacturing PMI improved in November, official ISM readings all disappointed and remained in contractionary territory. Meanwhile, the Caixin China PMI readings surprised to the upside with the manufacturing reading up at 51.8. And China’s FX reserves remained comfortably over the USD 3tn level. The Markit Eurozone manufacturing PMI beat estimations but remained below the key 50 level and German industrial production disappointed in November. Missing market expectations for a positive release, IP fell 1.7% mom and was down 5.3% yoy, with the previous reading revised lower too.
A number of surprise policy decisions were announced last week, including Japan’s bumper stimulus package aimed at boosting growth by 1.4%. There are however doubts that such a “bridge to nowhere” package will be enough to prevent slowdown next year. Meanwhile, having cut rates five times this year the Reserve Bank of India stayed pat, despite markets pricing in a 25bp cut certainty. The central bank did reiterate its accommodative stance adding it felt it appropriate to pause at this juncture with inflation having spiked through its 4% target and on the back of current growth dynamics. Meanwhile, the ECB’s Lagarde said the central bank’s “accommodative policy stance has been a key driver of domestic demand during the recovery, and that stance remains in place”, and will be “resolute” ahead of her first meeting on Thursday.
A pretty exciting week ahead will witness the UK general election on the 12th, if the Conservatives win, Boris has promised a baby boom as “Cupid’s darts fly” once his party gets “Brexit done.” There are a number of central bank gatherings, the Fed, ECB and SNB are expected to remain on hold, however the likes of Brazil, Russia, and Turkey could cut rates before the year is up. The next lot of US tariffs on Chinese goods could be deployed on Sunday 15; we wait and see whether China will convince the US to hold off. A pretty thin data week will see US inflation readings on Wednesday and retail sales on Friday. Trump's impeachment vote is also due this week.