Markets remain fixated with the US-China Trade War and Brexit

Financial markets were told we have a phase-one trade deal six weeks ago, but US legislation supporting Hong Kong protesters and disagreements on tariff rollbacks have raised the risk of complete setback in trade talks.  US stocks are still near record highs, the dollar appears rangebound as the Fed appears to be on hold until next year, possibly waiting for further signs that the economy is slowing down.  The first half of 2020 has a lot of risks, and if global growth uncertainty persists, it is unlikely the US will be immune to that.  If the global outlook does not see significant improvements with trade and Brexit, we could once again see strong underlying support for safe-havens.

The British pound could quickly become an overcrowded trade as we near the December 12^th vote.  Goldman Sachs has joined Bank of America Merrill Lynch and Morgan Stanley in bullish calls for sterling.  Polls are suggesting Boris Johnson is comfortably maintaining his double-digit lead against Labour, prompting optimism we could finally see Brexit delivered.  A ton of uncertainty will persist despite elections going as planned, as the window to get future trade deals done is so tight.

In addition to trade updates and Hong Kong politics, the market will focus on Fed Chair Powell’s speech, the German IFO business survey, a plethora of US data that will highlight any weakness to the US consumer, and GDP readings from India and Canada.  The trading week will also be hit with spells of thin liquidity due to the Thanksgiving holiday and Black Friday shopping.

Key Economic Releases and Events:

Saturday, Nov 23^rd

G20 Summit & G20 Foreign Ministers’ Meeting

Sunday, Nov 24^th

Hong Kong District Council Elections (first vote since protests started over 5 months ago)

Monday, Nov 25^th

4am German Ifo Business Climate

5:45pm NZD Core Retail Sales q/q

7pm Fed Chair Powell speaks at the Greater Providence Chamber of Commerce annual dinner in Providence.

7:50pm RBA Deputy Gov Debelle Speaks

Tuesday, Nov 26^th

Alibaba makes trading debut in Hong Kong

The European Investment Bank holds its annual conference in Luxembourg

2am Germany GfK Consumer Confidence

4:05am RBA Gov Lowe Speaks

10am US CB Consumer Confidence, New Home Sales, Richmond Fed Mfg Index

1pm Fed’s Brainard discusses Policy Framework Review

3pm RBNZ Financial Stability Report

5pm Governor Orr hosts news conference to discuss Financial Stability Report

7:30pm Australia Construction Work Done q/q

Wednesday, Nov 27^th

8:30am US Q3 GDP q/q (2^nd reading), Personal Spending m/m, Core PCE q/q, Core Durable Goods Orders m/m

10:30am EIA Crude Oil Inventory Report

2pm US Fed releases Beige Book

7pm New Zealand ANZ Business Confidence

7:30pm Australia Private Capital Expenditure q/q

Thursday, Nov 28^th

Thanksgiving Holiday

8am Germany Nov Preliminary CPI m/m

8:30am Canada Current Account q/q

7:30pm Australia Private Sector Credit m/m

Friday, Nov 29^th

Black Friday

7am India Q3 GDP y/y

8:30am Canada Q3 GDP Annualized

Sovereign Rating Updates: Ireland (S&P), Denmark (Moody’s), and Switzerland (Moody’s)

8pm China Manufacturing PMI

Market

USD

The key driver for the US dollar remains the next major trade update and if the US consumer remains strong.  We will hear from Fed Chair Powell on Monday, his first speech following his meeting with President Trump. Powell has been very consistent with keeping to the script from the October 30^th Fed policy meeting.  A wrath of data could show further signs the consumer is not as strong as it once was earlier in the year.

Risk

We are one tweet away from a complete collapse in the US-China trade war.  The latest uncertainty on how Hong Kong will impact trade negotiations and whether we will see a meaningful rollback with tariffs will determine how much risk appetite we have for global indexes.  The dollar will remain a key safe-haven trade that could see it outperform to the euro and commodity currencies.

Mexican Peso

The Mexican peso is falling against the dollar this week as US-China trade hope is evaporating quickly. The passage of the Hong Kong bill is another point of division between the two economic titans, and even
the positive comments by China this morning were not enough to keep risk appetite high. The Mexican peso is sensitive to trade news and both the USMCA and the US-China negotiations are raising red flags as the year nears a close.

The USD/MXN is trading at 19.4076 after starting the week at 19.1785. Contagion fears from protests in the region are low, but as a prolonged trade war could give rise to more protests as low growth gives way to more inequality.

Risk

The liquidity of the peso makes it a vehicle for speculators that want to short the region as Colombians took to the streets today to protest labor reforms. The precedent set by Ecuador, Bolivia and Chile will
not be lost in the market as political instability will keep downward pressure on LatAm markets.

Oil

Oil prices are approaching the upper boundaries of its tight range as trade optimism, an expected extension of the OPEC + production cuts and rising geopolitical risks are overshadowing a steady rise with US stockpiles.  Regarding the global growth front, the US is starting to show signs of fading strength, Europe is mixed and Asia remains weak.

Risk

With the velocity of US production easing up, we are seeing the oil markets remain fixated on trade updates.  The global growth outlook remains mixed but if Europe turns the corner, we could see upside surprises for oil prices.  We are just over a month away from the IMO 2020 low-sulfur marine fuel regulations.  The impact has been seen with sweeter crudes but has not yet translated into a broad catalyst for oil prices.

Gold

Gold prices remain stuck in a tight range as US stocks remain near record highs as trade optimism still anticipates further de-escalations with tariffs.  Gold is showing signs it may have bottomed out after a week full of potential negative headlines saw limited downward pressure.

Risk

Gold volatility could return as we will likely see further clarity with the December 15^th tariff deadline, if the polls continue to stay in Boris Johnson’s favor, and if geopolitical risks in Honk Kong, Middle East and LATAM continue to trigger unrest.

Bitcoin

The crypto rout is intensifying, and we could see a retest of the summer lows.  China has made it clear they are cleaning up the crypto space and this takes away a lot of bullish momentum that came from their embracing of blockchain technology.

Risk

Bitcoin volatility could easily see 10% swings over the coming days.  While this recent freefall makes Bitcoin vulnerable for a short-covering move, it will be hard for investors to feel any confidence in any long-term bets.

Country

Hong Kong

Municipal Elections due this Sunday. 50/50 at this stage as to whether they are cancelled or not.  Quandary for the Hong Kong government. With so much destruction and disruption of transport infrastructure from protests, logistically holding the elections is challenging. However, cancelling them could inflame anti-government protests and resistance.

Violence and protests are likely to continue.  US Congress passes support Hong Kong Law.

Risk

Protests have sent Hong Kong into a deep recession. However, the chances of direct intervention by Beijing remain very low. Likelihood of change to HKD peg remains zero.

Police shootings this weekend could send Hang Seng into a tailspin on Monday.

China

Trade negotiations appear to have stalled with the rhetoric from both sides underwhelming to say the least.

China is furious with the US Congress over the Hong Kong law, accusing it of foreign interference in internal Chinese affairs.

Risk

China pulls back on trade negotiations which will send Mainland and APAC stock markets and currencies sharply lower.

India

Nothing of note this week.

Australia

Bushfires threaten Sydney suburbs.

High beta to China trade and thus US-China trade discussions.

Risk

Deterioration of trade negotiations over the weekend could see local equities and the AUD move sharply lower on Monday.

Bushfires threaten economic growth with government bringing forward new infrastructure spending this week.

UK Election

The campaign continues and we’re now starting to get manifestos from the major parties. What we’ve seen so far has been a game-changer, with most policies being drip-fed out in recent weeks.

The first leaders debate earlier this week was a bore draw, with neither candidate straying from the prepared party lines. The polls still show the Conservatives well in the lead and favourites to secure a majority. A lot can change over the final few weeks of campaigning and the fact remains that this is still the most unpredictable election in years as Brexit forces many to question their allegiance. Tactical voting makes the campaign all-the-more difficult to confidently call.

Sterling has been very stable by recent standards in the run up to election day, hovering between 1.28 and 1.30 against the dollar. The Conservatives stretched their lead in the polls after the Brexit party opted not to fight the Conservatives in seats they already hold which is likely keeping the pound near the top end of its range. The weekends provide plenty of prime time slots for members of all parties, which could influence the open next week.

Further leaders debates are scheduled to take place, with some still to be confirmed. On Friday 22 November, the leaders of the Conservatives, Labour, Lib Dems and SNP are scheduled to take part in a Question Time Special. On Thursday 28 November, Sky News is expected to host a leaders debate including leaders of the Conservatives, Labour and Lib Dems (All TBC), while on Friday 29 November the BBC is expected to host a seven-way debate including all of the major parties.

LATAM Politics

Central bank intervention and government measures have done little to stem the tide against protestors in Chile. Investors grow concerned about social unrest and the polarization of citizens that does not
seem to follow a set ideology, but rather a protest on the previous regime regardless if it came from the left or right.

US Politics

Markets will digest all the impeachment developments but will likely see little impact to the financial markets.  Nothing was revealed that will sway Republican Senators to support the removal of President Trump.

The 2020 Democratic presidential contest will mostly remain market neutral if Biden and Buttigieg win the nomination.  The worst outlook for risk appetite would be a Sanders or Warren presidency, but right now Wall Street remains confident Trump could be either progressive candidate.

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