In our Investment Bank Outlook each week, we bring you a selection of perspectives from leading investment banks to outline the key issues and directional views for the week ahead. These excerpts, taken from research notes, will cover issues such as key market themes, economic releases, as well as any major trends and levels to watch. Please note, this material, which does not reflect the opinions of Tickmill, is provided for educational purposes only and should not be taken as an investment recommendation.
Danske Bank
US-China trade talks are set to continue being in focus, as we expect the coming week to give a sense of the mood between the US and China and the likelihood of a phase two deal in 2020. We continue to see a 50% chance of a phase two deal next year.
In the US, in terms of economic data releases, the most interesting releases are the preliminary PMIs for December, due on Monday. While US PMIs have moved slightly higher, the overall story is still that Q4 GDP growth has been slower than in Q3. Recent jobs growth has been strong but we plan to continue monitoring the employment sub-index to see whether it expects this to continue.
In the euro area, we are due to get the December PMI figures on Monday. In November, the manufacturing PMIs in both Germany and the euro area edged up for a second month. Although it seems that the worst of the manufacturing malaise is over, activity continued to slow in the service sector, setting the scene for anaemic growth around 0.1% q/q in Q4. However, the December ZEW showed a notable increase in both the current situation and expectations component, which bodes well for a continued gradual uptrend in the manufacturing PMI into 2020. Hence, we expect a small uptick in manufacturing PMIs to 47.0 and a stabilisation in the service print around its current level.
Wednesday brings December Ifo figures for Germany. Over the recent month, the Ifo figures have indicated that Germany is slowly but steadily edging away from the downswing territory and we look out for whether this continues in December
In the UK, the Boris Johnson era has begun and the first thing to look out for is whether Parliament will vote on his Brexit deal on Friday 20 December, which is the first opportunity given that new members of parliament are sworn in on Tuesday 17 December and the parliamentary opening (Queen’s Speech) is on Thursday 19 December. We believe the Brexit deal will pass smoothly given the large Conservative majority. For more details, see UK Election Review – Big Conservative victory means the end of the beginning of Brexit, 13 December.
There are a lot of interesting data releases in the light of the weakening economy. The flash PMIs for December are due out on Monday, which will be interesting given they are in recessionary territory below 50. The labour market report for October is due on Tuesday, which will be interesting, as many soft indicators suggest employment growth has slowed sharply, which is not yet visible in the hard data.
The Bank of England meets on Thursday. Despite the weaker economy and softer policy signal, we do not expect the Bank of England to change anything, as it is an interim meeting. We expect a cut at the following meeting in January.
In Japan, we have a busy week ahead of us. December PMIs are due for release on Monday. Both manufacturing and service PMI ticked up in November, after dreadful October readings in the wake of a typhoon and a VAT hike. Recent signs of bottoming out in the global manufacturing cycle should have a positive impact on Japan as well. On Wednesday, November export figures are due. We are not likely to see a big rebound any time soon but a weaker JPY helped exporters in November.
Citi
US/China trade deal: Is that it?
- After a flurry of Friday headlines, the US and China confirmed phase one trade deal has been reached. The deal will encompass areas including intellectual property, technology transfer, agriculture, financial services, currency, and dispute resolution. In exchange for some partial tariff rollback and the suspension of the December 15 tariffs, China will increase US agricultural purchases by USD32bn over two years.
- However, the deal is in principle, unsigned, subject to revisions, and not all details will be made public. Lighthizer, speaking on CBS’ “Face the Nation” program, said there would be some routine “scrubs” to the text but “this is totally done, absolutely.” However, a date has yet to be determined.
- Consequently we have seen limited enthusiasm in markets overnight, with Hang Seng in the red and USDCNH only modestly lower at 6.9986 at time of print.
So what do we really make of this deal?
- CitiFX Strategy’s Ebrahim Rahbari writes “We think i) the substance of the deal is still limited and not sufficient to catalyze new capex, ii) much uncertainty remains, before a deal is signed but iii) these developments suggest that the Administration is putting more weight on a strong economy into next year’s presidential election and therefore we see upside risks to our view of an L-shaped soft landing.”
- Citi Economics: Global Economics View - Phase 1 Deal News Takeaways: Kicking the can down the road. Uncertainty on achieving a Phase 2 (mostly on technology and the potential to reduce sanctions on Chinese technology companies) and national security considerations ahead of the 2020 Presidential elections will remain
- CNY: Positive overnight was all but ignored. Industrial output and private consumption were both much stronger than expected, with production jumping 6.2% from a year earlier and retail sales climbing 8%, data released Monday showed. At the same time, fixed-asset investment in the first 11 months of this year grew at 5.2%, the slowest pace since at least 1998.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!