The uncertain dynamics of US, China trade talks look set to have taken their toll on investors this week with European stocks set to post their first negative week since the end of September.
So much optimism has been priced in these last few weeks, yet there appears to have been little in the way of substantive progress towards a deal, despite all the warm and optimistic words of confidence on both sides.
This morning’s comments from Chinese President Xi suggest that there remains some way to go before we get any indication as to the possible timing of a phase one deal. His comments that China wanted to agree a deal but wouldn’t shy away from a continuation of the current standoff was clearly a warning that China would not be brow beaten into signing a deal they weren’t happy with.
Furthermore the prospect that President Trump is likely to sign off on the recently passed Hong Kong human rights and democracy act is likely to act as an added complication to the US, China trade narrative.
Investors also need to be mindful that even if a phase one deal is agreed it still needs to be passed by the legislature of both countries. That is important given that the USMCA deal agreed between Mexico, Canada and the US still hasn’t been signed off by US policymakers almost a year after it was signed.
Companies in the UK look set to continue to pore over the details of Labour’s latest election manifesto and what it might mean for them if they are able to command a majority after the election on December 12th. In any number of ways there is little comfort for business in the manifesto, and while the manifesto looks to address some very pressing problems in the UK, hollowing out innovation and investment seems a rather strange way to do it.
The latest flash PMI’s from France and Germany would appear to show an early flickering of a recovery in the manufacturing sector as both countries saw better than expected improvements to 51.6 and 43.8 respectively in November.
On the downside, however services activity has continued to soften with activity in Germany slipping to 51.3, a 38 month low, while activity in France came in unchanged at 52.9.
Whether these are green shoots is open for debate, but they have coincided with the maiden speech from new ECB President Christine Lagarde, and have also helped European markets push higher after a disappointing day yesterday. The final Q3 German GDP number also confirmed the economy just about avoided a technical recession with an expansion of 0.1%, however elsewhere in Europe the composite PMI came in at 50.3, still a pretty poor number.
In the speech she urged European leaders to embark on a new policy mix with much more fiscal input. There is certainly nothing new in this, it’s pretty much in line with expectations, and she is likely to find it no less easy than her predecessor Mario Draghi who was quite a skilled political operator himself. She also said the ECB would be conducting a strategic review of the entire policy framework over the course of the next few months.
She went on to call for the completion of banking union, as well as the single market in services.
US markets look set to rebound later today after three consecutive days of losses, over concerns about the progress of US, China trade. The main focus is likely to be on the latest flash PMI’s for manufacturing and services after this morning’s European data showed activity slipping towards stagnation levels.
Dow Jones is expected to open 84 points higher at 27,850
S&P 500 is expected to open 10 points higher at 3,113
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