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  • Weekly U.S. market focus
  • European market focus on Brexit, Italy, Draghi
  • Asia market focus on Trump-Xi meeting on Chinese PMIs
  • Brexit now depends on Parliament vote in December 
  • Outcome highly uncertain for Saturday’s Trump-Xi meeting
  • Powell’s appearance this week may indicate whether the Fed is curbing its hawkish bent
 

Weekly U.S. market focus — The U.S. markets this week will focus on (1) the prospects for Saturday’s Trump-Xi trade meeting in Buenos Aires, (2) whether oil prices can stabilize after last week’s -11% plunge to new a 14-month low and the prospects for the OPEC+ meeting late next week (Dec 6-7), (3) Fed policy as Fed Chair Powell speaks on Wednesday and as the minutes of the Nov 7-8 FOMC meeting will be released on Thursday, (4) whether there will be a partial U.S. government shutdown after Dec 7 when the current continuing resolution expires, (5) the Treasury’s auction of $129 billion of T-notes on Monday through Wednesday, (6) whether U.S. tech stocks will continue to drag the U.S. broad stock market lower, and (7) the prospects for U.S. holiday spending with today’s Cyber Monday.

In Washington politics, House Democrats will vote Wednesday on whether Nancy Pelosi will continue to be their leader for the new term, then standing before the full House in early January for a vote on the new House Speaker.  Tuesday’s election in Mississippi will select the last undetermined Senator slot for next year’s new 100-member Senate.

 

European market focus on Brexit, Italy, Draghi — In Europe, the focus will mainly be on Brexit after EU leaders at their summit yesterday approved the UK separation agreement.  Reports suggest that the UK Parliament could vote on Brexit as soon as Dec 10-11.  The Bank of England is scheduled to release its Financial Stability Report and bank stress test results on Wednesday and its analysis of the Brexit withdrawal agreement on Thursday.

There was some optimism on Sunday about the EU/Italy budget standoff when League leader Salvini said that “nobody is fixated on” the actual budget deficit level of 2.4% of GDP, which he said could also be 2.2% or 2.6%.  ECB President Draghi will speak today to a European Parliament committee regarding monetary policy as the ECB moves towards its final meeting of the year on Dec 13 where it is expected to confirm the end of its QE program on Dec 31.

Asia market focus on Trump-Xi meeting on Chinese PMIs — In Asia, the focus will mainly be on the prospects for Saturday’s Trump-Xi meeting in Buenos Aires and whether there is at least a cease-fire agreement on any new tariffs and the scheduled hike in the U.S. tariff to 25% from 10% on Jan 1 on $200 billion of Chinese goods.  The Shanghai Composite index last Friday fell by -2.49% to a 3-week low as U.S. tech stocks and US/Chinese trade concerns continued to drag the world stock markets lower.

Thursday night’s China Nov manufacturing PMI report is expected to be unchanged at 50.2, stabilizing after Oct’s -0.6 point drop to 50.2.  China’s Nov non-manufacturing PMI is expected to fall -0.1 point to 53.8, adding to Oct’s -1.0 point drop to 53.9.

Brexit now depends on Parliament vote in December — The EU at its emergency summit on Sunday approved the UK separation agreement after some drama from Spain over the disputed territory of Gibraltar.  The ball is now in Prime Minister May’s court to get the UK Parliament to approve the deal.  There are reports that a vote in Parliament may come as soon as Dec 10-11.

If the UK Parliament votes against the Brexit agreement, then possible outcomes include (1) Prime Minister May goes back to the EU to see if she can get any concessions that will convince Parliament to vote in favor of the deal, (2) Ms. May simply keeps trying to get Parliament to approve the agreement as the damaging prospects of a no-deal Brexit approach in March 2019, (3) political chaos if Ms. May resigns as Conservative Party leader or calls for new elections, or (4) the UK holds a second referendum with the option for the UK to remain in the EU.

Outcome highly uncertain for Saturday’s Trump-Xi meeting — The markets are looking forward to the all-important bilateral Trump-Xi meeting in Buenos Aires this Saturday, Dec 1, following the G-20 meeting.  China has offered some concessions, but it remains to be seen whether President Trump will be willing to declare a ceasefire similar to his current deals with Japan and Europe where he refrains from new tariffs while formal negotiations are ongoing.  If Saturday’s Trump-Xi meeting goes badly, then President Trump has said he would go ahead in early December with slapping tariffs on the remaining $267 billion of Chinese goods and would proceed with the current plan of raising the tariff to 25% from 10% on $200 billion of Chinese goods.

On the negative side for an agreement, Vice President Pence on his recent trip in Asia issued some harsh language on China and USTR Lighthizer early last week released a report claiming that China has not changed its behavior and is still involved in corporate technology theft and the forced transfer of America technology.  On the more positive side, the Trump administration announced last week that White House trade advisor Navarro, the most virulent Chinese critic in the Trump administration, will be excluded from the Trump-Xi meeting in Buenos Aires.

Powell’s appearance this week may indicate whether the Fed is curbing its hawkish bent — Fed policy will be in the spotlight this week as Fed Chair Powell speaks on Wednesday at the Economic Club of New York.  Next week, Mr. Powell will testify before the Joint Economic Committee of Congress on the U.S. outlook.  Mr. Powell recently stirred some hopes that the Fed may be willing to back off on its hawkish rate-hike intentions when he noted that the U.S. economy is facing some headwinds from slower growth overseas, fading fiscal stimulus, and the lagged effects of the Fed’s rate hikes to-date.  Mr. Powell also mentioned the analogy that upon entering a dark room, it necessary to slow down or stop to avoid running into the furniture.

 

 

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