US-China headlines
US Vice President Mike Pence delivered a heavy speech that drew attention to China’s handling on a number of domestic fronts. He said “China’s actions [interventions] in Hong Kong curtails liberties and rights” and that the US “stand with you [Hong Kong people]”. Markets might take this as antagonistic and negative for US/China trade given “Phase 1” of US-China’s trade deal is yet to be finalised ahead of Trump-Xi’s APEC Summit meeting in Chile on Nov.16-17. While Pence also did have more positive rhetoric to offer on US-China trade talks, it wasn’t anything the market hasn’t seen before. We remain cautious on how constructive the next month will be in light of the number of structural issues that remain major sticking points for a meaningful US-China breakthrough. Risk sentiment was nervous at the time of the speech with USDJPY trading off 10pips while Asian currencies in USDCNH, USDTWD and USDKRW have also weakened through the night.
ASX points higher on Futures
Global benchmarks have been an exception to softer risk sentiment overnight spurred by decent earnings results. This saw ASX Futures creep above 6,700 to finish +42pts since yesterday’s Asia close. With little to no economic data in Asia, we therefore expect ASX Cash to point upwards in early trading carrying over late NY momentum and closing the week with a moderate finish.
Flash in the pan
Markets traded on the release of European Flash PMIs last night, an early indicator of where final PMIs may settle. We saw French Flash numbers surprise to the upside with Services 52.9 exceeding 51.6 consensus while Manufacturing also showed a modest beat 50.5 vs 50.0. The core focus however for markets was on Germany which had been much of the source of Europe’s manufacturing malaise. German PMIs fell slightly weaker than expected with Mfg coming in 41.9 vs 42 and Services 51.2 vs 52. There were some hopes that Germany would be buoyed by Brexit positivity and US/China’s temporary trade truce; but that doesn’t to appear to be the case just yet. An initial rally on positive French numbers was quickly faded as broad risk sentiment swept markets on signs of low output, slowing growth and subdued expectations. AUDUSD fell 20pips. NZDUSD shaved 15pips itself.
Scandies
Riksbank acknowledged the deterioration of economic conditions but overall appeared more hawkish than expected. Guidance now is on track for an isolated December rate hike. SEKJPY rallied 60pips or +0.5% on the news. Sweden’s neighbour in Norway however gave no surprises in their monetary policy statement with Norges Bank keeping rates steady at 1.5% in line with consensus, suggesting “the policy rate will most likely remain at the present level in the coming period”. NOKJPY did little on the news before succumbing to bearish pressure caused by concurrent broad PMI weakness.
Brexit
Headlines have emerged in the Brexit complex that PM Johnson wants to table a Monday Oct-28 vote for an early election that could take place Dec. 12. For the vote to pass, it’ll need 2/3 majority and therefore Labour’s support. However, UK Labour leader Jeremy Corbyn appears to have rejected PM Johnson’s plea to back an early election saying he wants to “take no-deal off the table” first. Risk sentiment was bearish on the news.
ECB uninteresting
Nothing new to take away from Draghi’s last ECB meeting as President. There was limited market relevance as expected. The ECB kept its deposit facility rate at -0.5% in a unanimous decision as expected.
