Trade Concerns Rumble On

Ongoing Sino-US trade concerns support safe-haven FX; equities rally to fresh all-time highs; election campaign rumbles on; UK data in focus this week

Previous Day's Market Highlights

Conflicting trade headlines once again dominated on Friday, as investors continued to weigh the prospects of a 'phase one' Sino-US trade deal being struck.

Having thought that a deal may be close on Thursday, with reports that the US had agreed to rollback tariffs as phases of the deal were done, markets became increasingly sceptical of such a plan as the week drew to a close. This scepticism, and dampening down of expectations that a deal is imminent, stemmed largely from comments made by President Trump refuting the earlier reports, claiming that the US hasn't agreed to any tariff rollbacks, and that tariffs will not be rolled back completely.

Hawkish trade adviser Peter Navarro echoed this sentiment over the weekend, repeating that there is currently no agreement to rollback any tariffs as part of a deal; though these comments contradict other reports from White House Aides who were said to be "very, very optimistic" that a deal can be done.

Nonetheless, the confusion and lower expectations of a deal being struck resulted in safe-havens remaining well-supported, which saw the dollar gain 0.25% - a 5th straight daily advance, seeing the greenback close the week at a 3-week high against a basket of peers. Conversely, the risk-sensitive antipodeans continued to struggle, as both the Aussie and Kiwi dollars shed more than 0.7%, hitting 1- and 3-week lows respectively.

Despite safe-haven FX remaining well-supported, the rotation away from risk assets has yet to spread to other asset classes. Treasury yields (which move inversely to price) continued to rally on Friday, with 10-year Notes gaining 3bps to reach their highest yield in 14 weeks, just shy of the 2% handle. In contrast, equity markets gained - symptomatic of a continued rotation away from fixed income and into stocks - as the US benchmark S&P 500 chalked up a 5th week of gains, adding 0.25% on Friday to hit a fresh record-high.

Elsewhere on Friday, the Canadian dollar stumbled, shedding 0.35%, after disappointing October jobs data. Despite unemployment holding steady at 5.5%, just above the record-lows seen in May; net employment unexpectedly dipped by 1,800 last month. While this decline may be little immediate cause for alarm, with the economy having added a huge 135,000 jobs in August and September, a continuation of the slowdown in jobs growth will likely concern the BoC, and could result in policy loosening over the coming months. 

Friday's only other notable release was November's preliminary consumer sentiment gauge from the University of Michigan, reading 95.7, just shy of expectations. Nonetheless, the index continues to show the US consumer remaining relatively upbeat, and remains above the 3-month average of 94.8, which should see consumer spending remain relatively healthy going forward, helping to prop up the US economic expansion.

Finally, let's turn to the elephant in the room - the looming December general election. Friday saw little in the way of political developments, leaving the pound once again struggling for clear direction. Sterling settled unchanged against the euro, and 0.45% lower against a stronger dollar. However, over the weekend, Labour and the Conservatives have become involved in a spending row over the former's economic plans. The Tories claim that Labour's plans would cost £1.2tln over 5 years and leave the country "on the brink of bankruptcy"; while Labour claim that the analysis is "fake news" and "ludicrous". Official manifestos are, however, yet to be released; while weekend opinion polling continues to point to a double-digit Tory lead.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1605 1.1661 1.1427 2.01%
GBP/USD 1.2795 1.3012 1.2515 3.82%
EUR/USD 1.1025 1.1179 1.0991 1.68%
GBP/AUD 1.8675 1.9094 1.8518 3.02%
GBP/NZD 2.0160 2.0559 1.9875 3.33%
GBP/CAD 1.6925 1.7095 1.6670 2.49%

Today's Market Highlights

The trading week to come will once again likely be dominated by those all too familiar themes - shifts in US-China trade sentiment, and British political developments. Regarding trade, market participants will remain glued to any developing headlines as they continue to assess the chances of an interim trade deal being signed. Attention will likely focus on President Trump's planned address on Tuesday, where trade is set to feature heavily. 

Meanwhile, in the UK, campaigning for the upcoming general election will continue, while investors will also have a packed slate of economic data to digest, including third quarter GDP, September's employment figures, and October's CPI and retail sales reports. This morning sees the first estimate, and most impactful, release of third quarter GDP, set to show the economy growing at 0.3% QoQ, a relatively strong bounce-back from Q2's 0.1% contraction. Such a bounce back would see the UK avoid a technical recession, though continued weakness is to be expected in the production sector. 

Looking ahead, this week's labour market data, due on Tuesday, will be closely watched for signs that the jobs market is beginning to turn. On Wednesday, CPI is expected at just 1.7% YoY, a continuation of the recent benign pace of price increases, while Thursday's retail sales print is set to show sales increasing by a decent 0.2% MoM.

Turning to monetary policy, the Reserve Bank of New Zealand (RBNZ) will announce their latest policy decision in the early hours of Wednesday morning. Faced with increasing downside economic risks, a sluggish pace of growth, subdued inflation and a slack labour market, policymakers are likely to add further accommodation by announcing a 25bps rate cut, bringing rates to a fresh record low of 0.75%. Sticking with central banks, this week sees Fed Chair Powell make two appearances on Capitol Hill (Weds & Thurs), which will likely see a repetition of the Fed's 'wait and see' stance. A host of other Fed speakers are due throughout the week, including the two big-hitters - Vice Chair Clarida and NY Fed President Williams - on Thursday. 

On the data front, outside of the UK this week's calendar is also busy. From the US, a holiday-shortened week, with markets being closed today for Veterans Day, sees the release of October's CPI (Weds) and retail sales (Fri) figures. Of course, both points will be closely observed by the FOMC, especially the latter with consumer spending continuing to be one of the few factors underpinning the present economic expansion. Elsewhere, third quarter GDP from Germany is expected to confirm the eurozone's economic engine room dipping into technical recession for the first time in 6 years, while Thursday's Australian labour market data will be examined for any continued signs of slack, with the RBA maintaining an easing bias.

Today's Economic Calendar

Time Currency Release Consensus Previous
9.30am GBP GDP (QoQ - Q3 1st Est.) 0.3% -0.2%
9.30am GBP GDP (YoY - Q3 1st Est.) 1.1% 1.3%