German confidence rebounding but to what extent
The narrative around the state of the German economy has somewhat shifted over the past 6 weeks with successive bouts of positive data confirming at least a minor steadying in risk sentiment. First came the avoidance of a technical recession when GDP m/m printed 0.1%. Next, investor confidence rose sharply on Zew measures. And then there was last Friday where much focus was put on the German manufacturing PMI number. Of course, it showed a slight improvement on the prior month printing 43.8 vs 42.9, hinting at the possibility that the worse in manufacturing was behind us. There was one hiccup however. Service PMIs retreated. This could be some latent effect from an extended period of weak manufacturing.
Markets look to scheduled risk tonight at 9am LT for more confirmation on the German story. There are three data points coming out though most will focus on the Nov. German IFO Business survey currently forecast for 95.0, an incremental improvement on last month’s 94.6. A positive surprise presents an opportunity for traders to get short EURGBP. EUR positioning has turned more net short in the past week.
Labour’s manifesto bad for business
While Corbyn’s leftist approach and Marxist rhetoric isn’t a surprise to anyone, when plastered all over the Labour Party manifesto – it’s still a fair shock. It makes him a dangerous market-negative candidate for the upcoming election. That is, beyond Brexit, Labour’s radical economic policies could be a serious concern for investors and corporations, and the business environment they’re operating in. Broadly speaking, we would suggest Labour plans to nationalise key industries, institute stronger labour laws, increase taxes of top bracket individuals and corporations, and raise the National Living Wage, could do more harm than good. On the opposite side, the Tory manifesto eschewed from any controversial details and focussed on the narrative “get Brexit done”. GBPUSD found some pause at 1.284 and has since climbed back into 1.2870. We retain GBPUSD bullishness on Conservatives taking the Dec. 12 election.
European equities set for boost on yo-yo trade talks
Euro Stoxx 50, DAX and FTSE Futures have edged higher in Asia and are set to drive gains in their respective cash index at open. A culmination of positive trade snippets is to blame. While we detailed the main points of where markets are at with US-China trade talks in our Three Monday Talking Points, we’d like to remind traders that reports suggest phase two between US and China is looking far less likely now than ever. Add to that, Trump’s also expected to sign the HK Bill any day now. And the fact that we’re yet to confirm any tangible details of what phase 1 written commitments are, if any. All of this makes us very suspect.
