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No phase one? PMI green shoots wilt, NATO, GBP 7-month high & Alphabet

Shares in Europe opened higher on Wednesday, that follows a rocky session in Asia, while Wall Street is pointing to a firmer start. Safe haven currencies including the Japanese yen and Swiss franc have been making gains. Gold has joined in on the safe haven flows while oil is rising.

 

Trade war: What happened to phase one?
December has started with a bang. Thanks to new fronts opening up in the trade war, Wall Street has given up the best part of a month’s worth of gains in two days. Up the stairs and down the lift. Short term, we are looking for current levels for some stabilization in the Dow. That is around 27,300, which was the top of the price range from July through November. If more declines are on the cards, we’d look to the equivalent price point in the S&P 500, which comes in at 3020 for said stabilisation.

 

The latest comments from the US President are ominous for the phase one deal that markets had been pinning their hopes on. We hadn’t expected any kind of deal to be completed in 2019, but Trump’s suggestion of “late 2020” is much later than the first quarter of 2020 we had pencilled in. China, for their part seems politically less able to strike a trade deal given the US bills on Hong Kong and now the Uighurs in Xinjiang. We tend to think Trump is talking tough and that phase one can still be done sooner than the end of 2020. There is a “happy place” where China offers enough that Trump feels able to rollback some tariffs but we are not there yet.

 

PMI green shoots wilt
We are seeing another attempt to buy the dip in early trading across European markets. It didn’t pan out yesterday. We think markets could be ready to stabilise short term but a mixed bag of PMI numbers out of Europe won’t prove much help. The trouble is that if the trade spat between the US and China starts to unravel again, it threatens the green shots we’ve been seeing in European PMIs- and the gains in European shares. Today’s numbers weren’t great anyway for the service sector but we will put less emphasis on good numbers if the trade war means they can’t last.

 

NATO tensions: don’t matter for markets
Trump has been sparring with French President Macron on a broad range of issues. Public disagreements between NATO members are symptomatic of the existential questions over the organisation. Trump doesn’t like the US covering European’s military bills and Macron seems to favour an EU army. It is hard to price in an immediate threat to overall markets, other than adding to the risk off mood at the margins.

 

7-month highs in Sterling
An aside is that while Trump is taking on Macron and NATO, he is not commenting on the UK election. Trump has so far not given Labour the break-through ammunition it needs to accuse of the Conservatives of “putting the NHS up for sale” in US trade negotiations. The Labour leadership has an issue with credibility which means the public isn’t buying the NHS finger pointing. The Tory campaign was even shrewed enough to avoid a photoshoto with Boris and The Donald to avoid Today the British pound rose above 1.30 to the US dollar. The longer we go without a ‘Boris bump’ in the road – the more willing investors are to price in a business-friendly Conservative election victory.

 

Alphabet: Pichai steps up to Alphabet CEO
Larry Page was clearly unwilling to participate in this new trickier and more political phase in the growth of Google and its parent company Alphabet. Alphabet shares have had a stellar year with Sundar Pichai at the helm of Google and we think investors will welcome the continuity. Pichai is not the kind of outspoken CEO to take on politicians and regulators out in the open. That could be his undoing when the rising number of tax and competition probes lead to more public appearances. More likely though, Pichai can rely on behind the scene strategising and lobbying to end up with manageable results that allow Google to keep its top spot in internet search and grow in new areas like the cloud and AI.

 

US opening calls

S&P 500 to open 5 points higher at 3098

Dow Jones to open 62 points higher at 27,564

21-9-2020

Trump approves TikTok deal, Powell & Superdry earnings
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18-9-2020

USD/JPY sub-105 and UK retail sales
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16-9-2020

Buffett-backed Snowflake IPO & Fed Preview
MARKETS The Dow Jones ended roughly flat on Tuesday, pressured by a fall in financials and a u-turn in Apple after the tech giant launched a new services bundle and hardware. The S&P 500 was up 0.52% while the Nasdaq added 1.21%. Apple rose 0.2% but had be… Read more

14-9-2020

Brexit bill first debate & tech stock sell-off
Markets The major U.S stock indexes fell for the second week in a row, as technology stocks experienced their worst pullback since March. The market was volatile in a holiday-shortened week, with the Nasdaq posting a 4% decline on Tuesday followed by a nearly… Read more

18-5-2020

Gold hits 7-year high after Powell Warning
Fed Chair Jay Powell has warned the US economic recovery might last through the end of 2021. The Fed is normally too optimistic in its forecasts so the outlook feels bleak. Still, warm weather is encouraging countries to continue exiting lockdown. If the flu s… Read more

14-5-2020

Powell predicts more pain to come but no NIRP
A warning from the top of the US central bank that there’s more pain to come isn’t going down well across markets. Fed Chair Jerome Powell warned yesterday that more stimulus will likely be needed in the US to fend off the economic damage done by virus and pol… Read more

13-5-2020

“Suffering and death” warning hurts markets
A sense of caution has taken hold across markets. Shares, riskier currencies and oil are pointed lower. There’s a reassessment of the likely timeline for economic reopening. Our sense is markets juiced up by higher liquidity may have gotten ahead of themselves… Read more

12-5-2020

Bitcoin halving, dollar breakout on second wave fears
Market sentiment remains fragile. There’s a lot of emphasis being placed on the virus numbers in economies that have been gradually reopening.  Wuhan, the City in China where it all began reported its first ‘cluster’ of new cases yesterday after lifting restri… Read more