After six successive weeks of gains, markets in Europe slipped back a touch last week, as did those in the US, pausing for reflection perhaps as to whether the prospects of a US-China trade deal, as well as an uptick in recent data, was the precursor to an end of year rebound in economic prospects for the global economy.
An added complication to the prospect of any sort of China-US deal has been events taking place in Hong Kong, against a backdrop of significant unrest. Weekend district elections appear to have prompted the various parties to take a step back to allow voting to take place, with pro-democracy candidates surging to a significant victory.
While there is growing scepticism that the US and China will be able to agree anything tangible before year end in terms of a phase one deal, there is some evidence of progress on the rather thorny question of intellectual property, which has been a significant US red line. The US wants China to crack down harder on the theft of IP, and stop forcing US companies to hand over commercial secrets in return for doing business in the country.
In an apparent olive branch, China has said it will lower the thresholds for criminal punishment when it comes to the theft of IP, as well as increasing the penalties on companies who steal IP. While this is unlikely to make it into any phase one deal, this does appear to hold open the prospect, of further progress if, and after a phase one deal is eventually agreed.
This in turn appears to have boosted sentiment in Asia trading at the start of the week, while the Hong Kong district elections have sent a clear signal to China that the people are hugely dissatisfied with the government of Carrie Lam. As a result Hong Kong markets have jumped sharply, however before anyone gets too carried away it will be interesting to see whether the surge in support for pro-democracy candidates actually yields any long term results.
The pound appears to have got off to a steady start to the week in the wake of the launch of the Conservative party manifesto at the weekend. In contrast to the launch of the Labour Party manifesto, which came across as a pick and mix wish list of giveaways, with another £58bn being pledged at the weekend on pensions, the Conservative party’s offering came across as a much more safety-first affair.
Promising to lock in place income tax, national insurance and VAT rates, while pledging extra cash for the NHS, childcare and education, suggested that the party had learnt from its disastrous 2017 campaign, when it detonated a bomb under its campaign with a disastrous social care policy. The policy from here on in given the current opinion poll lead would be not to do anything to jeopardise that, by at least being seen to be a little more responsible when it comes spending commitments.
Last week we saw some improvements in the latest flash manufacturing PMI numbers from both Germany and France, however these contrasted with services which were a little softer. Both countries saw better than expected improvements to 51.6 and 43.8 respectively in November. On the downside, however services activity continued to soften with activity in Germany slipping to 51.3, a 38-month low, while activity in France came in unchanged at 52.9.
With this in mind today’s German IFO business survey should be instructive in terms of whether German business have a similarly optimistic view heading into the end of the year, as well as reflecting the recent improvement in the ZEW survey, which came in at its highest level in 6 months 2 weeks ago. Expectations are for an improvement to 94.9, and a three-month high.
M&A is also expected to dominate early this week, after LVMH upped its offer for Tiffany over the weekend to $16bn, an increase on the initial $14.5bn bid, as it seeks to take on its closest rival Richemont, who own Cartier, and help gain it better access to US markets.
Another big deal over the weekend is Swiss based Novartis agreeing to buy US based Medicines Co for $6.8bn, and its new experimental cholesterol treatment Inclisiran, which recent tests showed cut cholesterol levels in half over an 18 month period.
EURUSD – failed to overcome the 1.1100 area last week and has slipped back. Support comes in at the lows this month just above the 1.0980 level. The risk remains for a move below the 1.0980 level, with a break opening up a return to the October lows of 1.0880. Broader resistance can be found at the 1.1180 area and 200-day MA.
GBPUSD – the resistance at the 1.3000 area continues to cap the upside, while we also have support at the 1.2760 area. The 200-day MA at 1.2680 is a big support level and while above it the scenario remains bullish for 1.3200.
EURGBP – remains under pressure while below resistance at the 0.8670/80 area, and recent range highs. Support currently at the November lows at 0.8520, on the way to the lows this year at 0.8410.
USDJPY – currently have resistance at the recent highs at 109.50 area. The failure to follow through towards 110.00 keeps the risk for a move back to the lows this month at 107.80. W5e also have interim support at the 108.20 area.
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