Weekly multi-asset desk views

Weekly review: 8 November 2019

Weekly Mag updates

Summary

  • Signs of stabilisation in economic data
  • Improvement in US-China trade war developments with a step closer to a ‘Phase One’ deal being signed

Market and economic review

The big mover this week was global government bond yields, which materially rose in most part due to increased optimism around a ’Phase One’ deal being signed. As this was led by US Treasuries, the dollar strengthened against most developed market currencies. Equities performed steadily well throughout the week, with cyclicals outperforming defensives – the latter generally perform poorly when government bond yields rise. Economic data releases pointed to small signs of stabilisation in global growth.

Improvement in US-China trade war developments with a step closer to a ‘Phase One’ deal being signed

China’s Ministry of Commerce announced that the US has agreed to roll back some of the tariffs as part of the Phase One deal. We have yet to receive further detail on which tariffs specifically and the size of the roll back. However, the announcement helped to encourage a risk-on move with developed market government bond yields increasing to their recent highs, and equities performing well.

Announcements from US officials suggested there are divisions within their camp, with some news flow suggesting the roll back of tariffs had been agreed, and others commenting that the roll back faced “fierce internal opposition at the White House”. This resulted in a slight pullback in markets as they await some more concrete news.

The original plan was for the Phase One deal to be signed at the 2019 Asia-Pacific Economic Cooperation Summit last week, but Chile cancelled the summit. The next important date in the diary for tariffs is on 15 December (when the US intends to add tariffs to Chinese smartphones, laptops and toys) so it will be interesting to watch how the story develops as we approach that date.

While on tariffs, over the weekend we heard from US Commerce Secretary Wilbur Ross on the topic of US tariffs being imposed on European and Japanese autos. Secretary Ross was quoted saying the US has been having “good conversations” with automakers from the EU and Japan, which provided hope that tariffs will not be imposed. Predictably, auto companies performed particularly well throughout the week.

Signs of stabilisation in economic data

The US non-manufacturing ISM was released, printing at 54.7 versus an expected 53.5, and increasing from the previous month’s 52.6. This followed the Markit US purchasing managers’ indices (PMIs) which slightly disappointed, but the market tends to follow the ISM more closely – which helps to partly explain the performance of equities this week. PMIs out of Europe were also positive, with the eurozone composite printing at 50.6 versus an expected 50.2. Adding to the positivity around the potential improvement in trade, the export number out of China largely beat expectations. This came in at -0.9% versus an expected -3.9%. 

Outlook

It’s a reasonably quiet schedule next week given the recent slew of data releases and central bank decisions. We will see whether Germany falls into a technical recession (two quarters of consecutive GDP decline) when it releases the Q3 GDP number. Outside of that, this weekend brings inflation numbers out of China and an election in Spain.

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