Sino-US trade negotiations appeared to take a positive turn last week after China announced that it and the US could look to roll back tariffs as part of the Phase 1 agreement. Although this was partially confirmed in the US, Trump over the weekend said that even though trade talks are coming along “very nicely” the rollback of tariffs news is “incorrect”. Further Sino-US headlines will remain a key macro issue this week, along with Brexit and global growth concerns. The dollar enjoyed a rally last week, the DXY Index jumped 1.15% and US Treasuries sold-off with the benchmark 10-year yield up 23 basis points at 1.94%. Elsewhere, it seemed as though markets were holding onto any positive trade news which saw China’s offshore renminbi gain 0.79% against the dollar; although it is trading back up above the 7 level against the dollar this morning.
Closer to home, as the snap election campaigning kicked-off, the BoE voiced concerns over economic forecasts being “skewed to the downside”. The central bank stayed pat, as expected, however the surprise was the two dissenters looking for a cut which sent sterling into a bit of a tizz; the pound closed 1.33% lower against the dollar. Q3’19 data releases this morning were mixed, with GDP and IP disappointing, while exports surprised to the upside. As market fears surrounding the economic and debt challenges in the wake of Brexit continue to grow Moody’s also warned of its concerns; the rating agency downgraded its outlook for the UK to Aa2 negative. Moody’s also revised its outlook for India’s Baa2 rating from stable to negative citing budget deficit concerns, a deepening shadow banking crunch, and a slowdown which “has been deeper and longer than anticipated”.
Meanwhile, the EC trimmed its euro-area growth forecast for the year to 1.1%. German factory orders jumped in September on a month-on-month basis and the PMI readings marginally beat expectations. We heard that the new ECB president, Christine Lagarde will face pressures to revise the way the ECB determines monetary policy, this amongst other key areas will be discussed at her first council meeting this Wednesday. Staying with Europe, Germany’s “grand coalition” parties finally reached a deal on the basic pension whereby an increase, beginning in January 2021, could see those who have been in work for at least 35 years benefit; roughly 1.2-1.5m people.
China imports and exports fell less than markets expected, and the trade balance widened. CPI jumped to a seven-year high in October driven by high pork prices following the swine flu epidemic. All eyes will now turn to key data including fixed assets, IP and retail sales releases this week. Markets will also be keeping a close eye on the heightened tension in Hong Kong after a police officer shot a protester. With protests entering their sixth month, and trade concerns hanging over the nation, there are increasing worries over the economic outlook. Indicators such as the Markit PMI, which plummeted below 40 in October to the worst reading since November 2008, have not supported sentiment.
This week kicked-off with Single’s Day in China, and Xi Jinping’s meeting with Greece’s PM Mitsotakis. On Tuesday, Trump will speak at the Economic Club of NY and we have the UK’s employment sector prints and Germany’s ZEW reading. Wednesday will see Turkey’s President Erdogan meet with Trump in Washington while the US House Intelligence Committee holds the initial public hearing in relation to the impeachment inquiry. Meanwhile, Fed Chair Powell is due to address the joint Economic Committee US Congress and US and UK CPI will be released. On Thursday, China IP and retail sales data will be watched closely as will Powell's testimony at the House Budget Committee hearing; the first Fed chair to testify since 2012. UK retail sales, and RICS house-price index and German and Euro-area GDP will attract market attention. Friday will see the second day of the public impeachment hearings and US retail sales and IP prints.