Market movers today
This morning we published our semi-annual update on the global macro outlook, Big Picture: Rays of light for the world economy . In the piece we present our view of the global economy after a period of sizeable monetary policy stimulus from major central banks and fiscal stimulus in China. We conclude that the global economy is showing tentative signs of stabilisation but that there are still risks on the horizon, in particular the US-China trade war. In our view the risk of a global recession has declined to 25% (from 30%). We emphasise that the US-China trade talks is a key risk to the global economy in 2020 and with a 50/50 chance of a permanent trade deal between the two sides, there may be considerable uncertainties in the pipeline.
Today’s data highlight is US ISM manufacturing. ISM manufacturing is weak but the regional indices and the Markit PMI manufacturing index point to an increase. We will also keep a close eye on the employment sub-index, which has been quite weak recently.
ECB President Lagarde appears at her first Parliament hearing today after her term began in November. We do not expect any signs of monetary policy implications, but focus will be on the monetary policy strategy review.
In Scandi, Norwegian and Swedish PMI will be released, see page 2.
Selected market news
Chinese November PMIs (the official ones) released Saturday were much better than expected. The PMI manufacturing rose from 49.3 to 50.2 (both we and consensus had expected it to stay below the 50 threshold), the highest level since early 2019 although the level remains below the levels in 2017 and 2018. The PMI non-manufacturing index rose to 54.4 from 52.8, the highest since early 2019. Also the private Caixin PMI manufacturing index came out better than expected , basically unchanged at a high level (51.8 versus 51.7 in October). We had expected a decline, as it has painted a very bright picture as of late, so the unchanged print is very positive. Overall, the PMIs support our view that the worst is behind us and China has begun a moderate acceleration supported by stimulus and declining trade war fears. It is good news, as China drives one-third of global GDP growth and Chinese PMIs lead global PMI by a couple of months.
In a blow to Germany’s current grand coalition, Social Democrats over the weekend elected two left-wingers and notable ‘Groko’ critics as their leaders. With 53% of the vote, Norbert Walter-Borjans and Saskia Esken defeated the ‘continuity team’ of finance minister Scholz, who were seen as the frontrunners. The result increases the risk of a government crisis and new elections in 2020, although a final decision over the future of the coalition is only expected at the SPD party convention on 6-8 December. Still, with political uncertainty returning to Germany it could set the stage for some market nervousness this week, sending German yields and EUR/USD vol higher again.
