- Weekly global market focus
- Trade tensions continue to be the primary market focus
- European market focus
- Asian market focus
- U.S. ISM manufacturing index
Weekly global market focus — The U.S. markets this week will focus on (1) trade tensions including US/Chinese trade talks, today’s results of the USTR investigation into France’s digital tax, and the USMCA, (2) oil prices as OPEC+ meets this Thursday and Friday and is expected to reaffirm its 1.2 million bpd production cut through March 2020, (3) key U.S. economic reports this week including today’s U.S. ISM manufacturing index and Friday’s Nov payroll report (expected +188,000), (4) President Trump’s visit today to London for the NATO summit, and (5) anticipation of next week’s FOMC meeting where the market is discounting a negligible 4% chance for a Fed rate cut.
Washington politics will be in the news this week as the impeachment hearings begin in the House Judiciary Committee on Wednesday. Also, the House Intelligence Committee today will review its impeachment report and vote as soon as Tuesday to transmit that report to the House Judiciary Committee. House Speaker Pelosi has suggested that she is aiming for a House impeachment vote before the Christmas break but that vote could easily slip into January if there are a substantial number of hearings or if there are new witnesses to be heard.
On the Washington politics front, there is also the potential for a U.S. government shutdown in just 2-1/2 weeks when the current continuing resolution expires on Dec 20.
Trade tensions continue to be the primary market focus — In addition to the usual concerns about the US/Chinese trade talks, the markets this week will be watching the progress of the USMCA talks. U.S. trade officials are currently trying to get Mexico and Canada to sign off on the amendments to the USMCA that are being demanded by House Democrats as their price for ratifying the agreement. Mexico’s lead negotiator last Friday said that a USMCA deal still needs work but that a deal could be reached as soon as this week. A House vote on the USMCA has probably already slipped into January.
The U.S. Trade Representative’s office is expected to release its report today on its investigation into France’s 3% digital tax. President Trump today may also announce tariff retaliation against France since the U.S. and France have not reached a compromise on the impact of France’s digital tax on the U.S. tech companies.
Regarding US/Chinese trade tensions, there was a development over the weekend when China’s Global Times reported that Chinese officials are still demanding a tariff rollback of some existing tariffs for a phase-one trade deal and not just a cancelation of the upcoming Dec 15 tariff of 15% on the last $160 billion of Chinese goods.
The U.S. and China still seem to have some significant issues to resolve for a phase-one trade agreement including tariff rollbacks, ag purchase definitions, IP protection, and technology transfers. The markets will probably take it in stride if a trade deal slips into January as long as President Trump defers the Dec 15 tariff, which is now less than two weeks away. On the other hand, if the US/Chinese trade talks should unexpectedly collapse, then the global stock markets would be in for some rough sledding.
The markets are also waiting to see if President Trump’s signing of the Hong Kong bill last Wednesday will disrupt the US/Chinese trade talks. So far, China has only made some vague threats of retaliation and it doesn’t appear that the Hong Kong bill will hurt the trade talks.
European market focus — The European markets this week will focus on comments by ECB President Lagarde today before the European Parliament, Thursday’s Eurozone Oct retail sales report (expected -0.4% m/m after Sep’s 0.1%), and Friday’s Oct German industrial production report (expected +0.2% m/m after Sep’s -0.6%).
European politics will also be in the news after Germany’s Social Democrats over the weekend elected two new co-leaders who are threatening to bring down their coalition government with Chancellor Merkel’s Christian Democrats if their demands are not met for coalition policy revisions.
The markets will continue to closely watch the UK election campaign ahead of next Thursday’s (Dec 12) general election. If the Conservatives win a majority of votes in the election, in line with the 69% betting probability, then Prime Minister Johnson says he has the votes to get his Brexit withdrawal bill through Parliament by the Brexit deadline of January 31. That would remove the immediate threat of a no-deal Brexit, although a new no-deal Brexit threat could still arise at the end of the transition period in December 2020.
Asian market focus — The Asian markets will continue to focus mainly on the US/Chinese trade talks and the Hong Kong protests, which continued over the weekend.
The markets on Monday will react to the better-than-expected Chinese PMI reports that were released over the weekend. China’s Nov national manufacturing PMI rose by +0.9 to 50.2, which was substantially stronger than expectations of +0.2 to 49.5 and put the index back above the expansion-contraction level of 50.0 for the first time in 7 months. China’s Nov national non-manufacturing index rose by +1.6 to 54.4, substantially stronger than expectations of +0.3 to 53.1. Sunday night’s Nov Caixin China manufacturing PMI rose by +0.1 to 51.8, stronger than expectations for a -0.2 point decline to 51.5.
U.S. ISM manufacturing index — The consensus is for today’s Nov ISM manufacturing index to rebound higher by +0.9 to 49.2, extending Oct’s +0.5 point increase to 48.3 from Sep’s 10-year low of 47.8 but remaining below the expansion-contraction level of 50.0 for the fourth month.
