Today’s podcast

https://soundcloud.com/user-291029717/markets-ignore-impeachment-they-want-the-trade-war-resolved?in=user-291029717/sets/the-morning-call

Overview: Call me maybe

• Markets still “glass-half-full” on trade; China’s He “cautiously optimistic” and invites US negotiators for face-to-face
• HK Bill though threatens a more comprehensive deal; SCMP suggests more likely limited to a truce
• USD/CAD biggest G10 mover, -0.3% as Governor Poloz closes door on cuts, states rates are “about right”
• Other FX little moved (DXY +0.1% to 97.99), only modest yield moves too with US 10yrs +2.9bps to 1.77%
• Interesting titbit – consumer confidence amongst Republican voters lowest since May 2018
• Coming up today: PMI day with JN, EZ, UK and US – focus on whether manufacturing stabilising and any drag on services

It was a quiet night overnight with limited market moves. Trade headlines again dominated, but on net the “glass-half-full” interpretation of a possible partial US-China trade deal continues with China inviting US negotiators to Beijing – inspiration for today’s title “Call Me Maybe”. FX was little moved outside of CAD with the USD (DXY) up 0.1% to 97.99, while US 10yr yields rose 2.7bps to 1.77%. Equities were also little moved with the S&P500 -0.1% to 3,106. Oil though rallied sharply with WTI +2.7% to 58.53.

First to trade

A series of headlines overnight gave a degree of optimism that a partial agreement entailing a truce is still likely despite the HK Bill being seen as barrier to a more comprehensive trade deal. China’s Vice-Premier He said he was “cautiously optimistic” about reaching a phase one deal, while also outlining some domestic reforms which some interpreted as addressing some US concerns – though your scribe is more sceptical. The WSJ also reported that VP He had invited US negotiators for face-to-face talks in Beijing. The article also noted that Chinese officials hope the in-person negotiations can take place before next Thursday’s Thanksgiving holiday in the US, though US officials have not committed to a date (see WSJ for details).

On the HK Bill

China was said to be “watching Donald Trump’s response”, though it seems the signing of the bill is inevitable with the editor of the Global Times (seen to be close to Beijing) noting “US lawmakers have gone blind all together. Present Trump needs to sign the bill using braille”. Instead and as the SCMP writes, the bill probably prevents a more comprehensive deal, but a tentative truce is likely to hold and that is widely expected that the US will – if not remove – at least postpone the imposition of further tariffs that are scheduled to take effect on December 15 (see SCMP for details).

US data

Data was sparse, though on a softer side in underlying terms. The Philly Fed Manufacturing Index rose to 10.4 from 5.6 (6.0 expected), though the details of the survey were weaker than the headline question with New Orders, Shipments and Employment all falling. Reweighting the Philly Fed according to the ISM weightings has the Philly Fed falling to a nine-month low. Jobless Claims also showed a soft edge coming in at 227k against 218k expected. Over the past couple of weeks claims have trended higher, but it is too early to assess what is driving the small uptick.

Not market moving but interesting

The Bloomberg Consumer Comfort Index showed consumer sentiment amongst Republican voters had fallen to its lowest level since May 2018 (see chart below). It is one tentative sign that some voters are feeling some headwinds, though as the chart below also shows confidence amongst Republican voters are still well above their long-run average level.

In FX

USD/CAD was the biggest G10 mover, -0.3% to 1.3281 with Governor Poloz pushing back on notions that the BoC had an imminent easing bias which had built earlier in the week. Governor Poloz stated: “we think we got monetary conditions about right given the situation” and that “we notice that the Fed has cut rates three times, now they are down to where we are….So the two economies are faring pretty similarly at this stage”. In other central bank news, the Fed’s Mester (non-voter, hawkish) reiterated the Fed is in a good spot.

Other FX moves were modest

The USD (DXY) rose +0.1% to 97.99 with correspondingly small declines in EUR (-0.1% to 1.1060), GBP (-0.1% to 1.2905), while USD/JPY rose +0.1% to 108.65.

There was little reaction to a late headline of the US Administration weighing a new trade investigation to justify tariffs on the EU as reported by Politico – a decision was expected to be made by Nov. 14 on whether to take action against imports of automobiles and auto parts from the EU with the passing of the deadline raising questions on whether he can continue to use s232 of the Trade Expansion Act to take further tariff action (see Politico for details).

The AUD was also little moved, down -0.1% to 0.6787 – though there was some intra-day movement alongside differing trade headlines with a high of 0.6814.

Coming up

It’s PMI day with PMIs due from a number of countries including importantly from Germany – expectations are for bounce following improved investor confidence in the ZEW survey recently. Otherwise it is a fairly quiet day both domestically and internationally with only a speech by the ECB’s Lagarde of any interest.

• AU: CBA PMI (9.00am AEDT): No consensus is available, last month had the overall composite balanced at 50.0.
• JN: Japan CPI (8.30am local, 10.30am AEDT): Super core CPI is expected to rise a tenth to 0.6% y/y from 0.5%.
• JN: Japan PMI (8.30am local 10.30am AEDT): No consensus is available for the Jibun PMI, last month’s manufacturing PMI was 48.4.
• GR: German PMI (8.50am local, 10.50am AEDT): A recent rise in investor confidence have markets primed for a better print with the consensus for Manufacturing at 42.8, up from 42.1. The Services sector will also be closely watched given signs that the slowdown in the manufacturing sector is starting to spill-over to the larger services side with the Services PMI expected to be 52.0 from 51.6.
• EZ: Eurozone PMI (10.00am local, 8.00pm AEDT): The manufacturing PMI is expected to rise to 46.4 from 45.9. Conditions in the services sector is expected to be stronger at 52.4.
• EZ: ECB’s Lagarde: First major speech so potentially very interesting, especially coming amid divisions within the Governing Council as illustrated in the ECB Minutes overnight.
• UK: UK PMI (9.30am local, 10.30pm AEDT): With the election dominating headlines the data is unlikely to have an enduring impact on markets. Consensus looks for the Manufacturing PMI to fall to 48.8 from 49.6.
• US: US PMI (9.45am local, 1.45am AEDT): Although the ISMs are more important for the US, the Markit PMIs have started to move markets more recently. The consensus looks for the Manufacturing version to rise a tenth to 51.4 from 51.3, while the Services PMI is expected to rise to 51.0 from 50.6.  
• US: Uni Michigan Consumer Confidence-final (10.00am local, 2.00am AEDT): Unlikely to be market moving given it is a final version of sentiment, the preliminarily measure had sentiment at 95.7. There will likely be some splicing of the data on voter lines given the Bloomberg Consumer Comfort Index showed sentiment amongst Republican voters was the lowest since May 2018.
• CA: Canada Retail Sales (8.30am local, 2.00am AEDT): Core retail sales are expected to decline -0.1% m/m.

Market prices

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