Thursday, 21 November 2019

P. 1

Markets

• Rumours and headlines on issues liked to the US China trade negotiations continued to dominate trading yesterday. It at least indicated that some roadblocks still need to be removed before a phase one trade deal can be signed. In particular, a bill approved in the US Congress aimed at the supporting the protesters in Hong Kong was seen as potentially complicating the process of reaching a deal. Global markets further shifted to a cautious risk-off modus. Latter in the session, the Minutes of the October FOMC meeting confirmed that the Fed intends to stay on hold after cutting the repo rate three times this year. A material change in the Fed’s assessment is needed for the Fed to change its wait-and-see bias. Even so, markets still embrace the idea that the Fed might cut rates again later next year if uncertainty on the economy would persist or if downside risks would materialize. The US yield curve bull flattened further with yields declining between 2 bps (2-y) and 4.3 bps (30-y). There were again few eco data with market moving potential. The decline in German yields was more modest between -0.2 bps (2-y) and -1.2 bps (30-y). The major USD cross rates showed no clear directional trend. EUR/USD didn’t make any further progress, but preserves most of its recent gain (close at 1.1073). USD/JPY also showed an erratic intraday trading pattern and finished at 108.61. Sterling also hovered sideways as the election campaign continues. EUR/GBP finished the day at 0.8567 after an indecisive trading session.

• This morning, uncertainty on the status/progress in the US China trade talks continues to weigh on global investors sentiment. US president Trump preparing to sign a bill supporting the Hong Kong protesters might further complicate the trade talks. Rumours that the signing of an agreement might be postponed till next year also add to overall uncertainty. On the other hand, China Vice Premier Liu He was said to remain ‘cautiously optimistic’ on a trade deal. Still, investor caution dominates trading this morning. Asian equities are losing up to 1.5%. The yuan declines further (USD/CNY 7.0410). Moves in EUR/USD (1.1075 area) and USD/JPY 108.60 area are again inconclusive. Today, the eco calendar is again only moderately interesting. We keep an eye at French business confidence, the OECD economic outlook and EMU consumer confidence. Are there signs that sentiment on the EMU economy is finally bottoming? US data including the Philly Fed business outlook, jobless claims and existing homes sales. The data will probably only intra-day significance. US yields are captured in a gradual downward correction as investors await clarity on the trade talks. This correction might continue. EMU bonds tended to underperform of late. EUR/USD is holding in the 1.1075 area, near recent ST correction top. The picture remains inclusive, but the pair maintain recent gains in a risk-off context, might be seen as an indication of underlying resilience. Sterling is holding strong but EUR/GBP apparently found a ST equilibrium near 0.8550 as long as there is no high profile news from the election campaign.

News Headlines

• The US House passed a pro-Hong Kong rights bill yesterday after the Senate unanimously approved the legislation on Tuesday. With a 417-1 margin, the Chamber approved the measure that aims to protect human right in HK amid efforts from China to crack down anti-government protests. The legislation will now head to president Trump who faces a dilemma as he tries not to roil trade talks with China. Nevertheless, China’s chief negotiator Liu He said in a speech last night he’s still “cautiously optimistic” about reaching a phase one agreement.

• UK’s prime minister Boris Johnson aimed to regain campaign momentum by pledging to introduce a multi-billion pound tax cut for working people if he wins the election on 12 December. Johnson would do so by raising the amount of earnings exempt from social security payments.

KBC Sunrise Market Commentary

Thursday, 21 November 2019

P. 2

Source: Bloomberg

Graphs & Table

US 10-y yield stays in correction modus as uncertainty on trade persists

EUR/USD maitains recent gain. A sign of resilience?

USD/CNY: yuan drifting lower

Hong Kong Hang Seng index trading in the defensive on persistent economic uncertainty

Thursday, 21 November 2019

P. 3

Calendar

Thursday, 21 November 2019

P. 4

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