European shares are set for a cautious start on Thursday as futures point to a lower start on Wall Street, while Asian shares were mostly lower overnight. The US dollar is off yesterday’s highs while the British pound is making early gains. Oil prices are a touch lower and gold is little changed.
Trump signs Hong Kong bill
It was another record-breaker for US markets yesterday but things look a little more fragile the day before Thanksgiving. As was fully-expected, US President Trump has signed into law the ‘Hong Kong human rights and democracy act’. When US equity benchmarks have hit their third successive record high, it’s fair to say that investors haven’t been losing much sleep about it. The thinking goes that the bill is mostly symbolic and doesn’t affect the phase one trade deal. The Hong Kong bill only becomes a reason to take profits from this year’s equity bull market if China over-eggs its response. We think there is a low chance of that happening. China is shaking its first with one hand while the other is outstretched for a handshake.
Initial concerns when the bill was first passed were soothed by indications from Beijing that it was simultaneously unhappy about the bill but happy to continue trade talks. On Thursday China’s foreign ministry said it will take “firm counter measures” if the United States continues to interfere in Hong Kong. That said, the provisions of the bill are potentially hugely damaging to Hong Kong. Hong Kong’s special status in US law coupled with its close ties to China has been its recipe for success. Losing Hong Kong as a trading and diplomatic outpost of China would be a self-inflicted wound for the US. Making it unlikely anything would ever come to pass.
UK Election: Poll says Boris to win majority of 68
EURGBP dipped below 0.85 (GBPEUR > 1.176) as more evidence arrived that Boris Johnson’s election gamble will pay off. YouGov has predicted that the Conservative Party would win a majority of 68 seats in the December 12 UK general election. Traders had been waiting for this poll because it got 2017 right when most didn’t. It would be the biggest Conservative victory since Margarent Thatcher- and the Thatcher comparison goes further. Like Thatcher, Boris is unabashedly pro-bankers and pro-markets- in stark contrast to the offering from Jeremy Corbyn’s Labour Party. If the election finished as this poll predicts it could open up the floodgates for foreign investment into the UK. Investors could rightly look at it as a watershed moment when the British public chose capitalism over socialism. Though there is always Brexit to get through first.
Opening Calls
FTSE100 to open 33 points lower at 7,396
DAX to open 33 points lower at 13,254
S&P 500 to open 8 points lower at 3,145
Dow Jones to open 73 points lower at 28,091
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