The mood of optimism surrounding the expected move towards “phase one” of a US/China trade deal has turned increasingly wary in recent days. Trump’s speech on Tuesday hardly showed the way forward, opting instead to go on the offensive in his rhetoric. Now it seems that a “snag” has been hit. Suggestions are that China is concerned over the one-sided nature of the deal given the significant increase in agricultural purchases (doubling to around $40bn/$50bn per year). China is looking for a get out clauses should relations sour again. This is driving market flow back into safe-haven assets. A decline in Treasury yields has seen US 10 year Treasury yield -10bps off last week’s rebound high. It is difficult to see the rally on equity markets continuing if yields continue to fall. In the forex space, the Japanese yen and Swiss franc are again outperforming, whilst higher beta commodity currencies are pressured. Adding to this caution today we see China data missing estimates across the board as Industrial Production and Retail Sales growth both continue to slide. On a lighter note, German growth beat estimates today as Q3 grew +0.1% and the country narrowly avoided moving into a technical recession. Is this enough to change the mood of caution though? With all eyes on US/China trade, probably not.
Wall Street managed to squeeze out marginal gains yesterday with the S&P 500 +0.1% at 3094, but US futures are again on the back foot early today -0.2%. Asian markets were mixed with the Nikkei -0.8% and Shanghai Composite +0.2%. The European markets are looking more cautious, with FTSE futures and DAX futures both around -0.1% lower. In forex, there is very much of a risk-averse bias with JPY outperforming along with a strengthening CHF and USD. The two big stragglers are AUD and NZD. In commodities, gold is finding support again, whilst oil has built further on yesterday’s rebound, adding another half a per cent on suggestions of slowing future US shale supply growth.
It is another packed day of data on the economic calendar. UK Retail Sales (ex-fuel) is at 0930GMT which are expected to show +0.2% monthly growth in October which would improve the year on year growth to +3.4%. Eurozone flash GDP is at 1000GMT which is expected to show quarterly growth