November 8, 2019 / 9:28 AM / 5 days ago

Daily Briefing: Turning point on recession risks?

LONDON (Reuters) - Safe-haven assets from German Bunds and Treasuries to gold and the yen are nursing a bloody nose after this week’s market moves but the bleeding may have been staunched for now.

FILE PHOTO: Traders work on the floor at the New York Stock Exchange, November 6, 2019. REUTERS/Brendan McDermid

A report that China and the United States had agreed to roll back tariffs on each other's goods as part of the first phase of a trade deal Initially that fuelled more exuberance, taking Asian shares to six month highs and helping Wall Street to another record high close.

But the mood was deflated somewhat after a U.S. official cast doubt on that news and sources said there was opposition within the White House. The overall mood remains relatively upbeat but MSCI’s world index has stalled around 21-month highs.

However it is on track for its fifth week of gains. Chinese markets too initially rose almost half a percent but have since closed half a percent lower and the yuan has eased off 3 month peaks versus the greenback.

As for safe-haven assets, 10-year U.S. Treasury yields have retreated from 3-month highs of 1.9730% touched late on Thursday and are now at 1.90% while German Bund yields are flat after this week’s 13 basis-point surge.

Currency safe-havens too are on the retreat - the dollar has risen against the yen to a five-month high of 109.49 yen while gold is set for its biggest weekly fall in 2-1/2 years.

Now it remains unclear if we are indeed at some kind of turning point in terms of confidence that the recession risk is out of the way. If trade wars are going to be resolved, governments will pick up the baton from central banks in supporting growth.

Our guests at the Reuters Investment Outlook Summit seemed to be in agreement at least on one point – that the world economy is not tipping into recession any time soon.

And that’s got to be a good thing. Imports and exports from China shrank less than expected last month and trade surpluses have growth, today’s data shows. Germany too has posted its biggest rise in exports in almost two years, easing fears that next week's GDP data will show the country has entered technical recession.

In terms of what lies ahead in terms of data, the U.S. Michigan consumer sentiment indicator will show us how services and private consumption are shaping up; remember that after the forecast beating payrolls report last week and robust ISM non-manufacturing data, we saw a weak services PMI print.

One place where the growth outlook remains mired in gloom is Britain, where the Bank of England finally gave up any pretence that it could raise interest rates; instead two of its board members voted to cut rates.

There are signs also that the labour market strength may be cracking, with job vacancies slipping of late. Sterling touched a 2-week low, having lost 1.5% in this period. Moody’s reviews its rating outlook this evening.

European bourses are also opening in negative territory following the weaker closes in Asian stocks. On the corporate front too, it is still all about Asia.

Richemont said political protests in Hong Kong weighed on sales growth in the six months to Sept. 30, but strong demand in the rest of China, Korea, Japan and the United States made up for this. Yet, traders are seeing the luxury firm’s shares down 3% today.

It is a busy and happy Friday for insurers. Allianz reported a better-than-expected 0.6% rise in Q3 net profit. Societa Cattolica di Assicurazione said its 9M net profit is higher than last year. More Italian companies are taking the stage with an array of earnings updates: Telecom Italia, Fincantieri, Unipol Gruppo, are some of the names reporting results.

Emerging equities are down 0.5% and currencies are treading water. However that does little to take the shine off healthy weekly gains with stocks and currencies on track for an fifth and sixth straight week of gains.

The yuan is poised for a near 1% jump in its best weekly gains in nearly five months, though trading a touch softer on Friday with trade data showing that exports and imports are both still contracting, though at a slower rate than expected.

South Africa’s rand weakened 0.2% on Friday, with a fresh round of loadshedding by battered power utility Eskom adding to the pressure.

Turkey’s lira hovers unchanged while Russia’s rouble loses 0.3% as lower oil prices weigh. The Indian rupee is at 3-week lows to the dollar after Moody’s cut the rating outlook to negative.

— A look at the day ahead from EMEA Markets Deputy Editor Sujata Rao. The views expressed are her own —

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