November 29, 2019 / 9:18 AM / 17 days ago

Daily Briefing: Waiting for Chinese "counter-measures"

LONDON (Reuters) - With U.S. trading desks likely thinned after Thanksgiving Day, moves in markets may be limited today but suffice it to say that despite all the volatility, world stocks are headed for their third month of gains and stand some 0.3% off record highs.

Protestors stand next to a U.S. flag as they attend a gathering in Hong Kong, November 28, 2019. REUTERS/Marko Djurica

Similarly European equities are near-4 year highs and again headed for a strong monthly finish. This morning's picture though is not very cheerful.

Asian shares fell more than one percent as investors wait to see what retaliation China may be planning after the United States passed a law supporting Hong Kong pro-democracy protesters.

Beijing, which is seeking to end a damaging trade war with the United States, has warned Washington of "firm counter measures". Meanwhile pro-democracy protesters in Hong Kong are stirring support for more rallies over the weekend.

The jitters are rippling out across the rest of Asia, with Korean stocks for instance down 1.5%, Chinese blue chips losing 0.6% and Hong Kong itself down more than 2%. European equities too are opening lower, and Wall Street (a half day today) is set for a weaker session too.

With no more trade war newsflow for now, focus is on upcoming economic data for any confirmation that an upturn/stabilisation in growth is underway.

So far in Asia there’s little sign of it — after the sharpest drop in retail sales since 2015, Japan has posted factory data showing its biggest fall in output in almost two years, down 4.2% in October and forecasters expect that household spending will fall at the fastest pace in 18 months as the effects of a sales tax hike are felt.

And Chinese manufacturing PMIs due on the weekend, are expected to have shrunk for the seventh straight month.

On the currency front, the yuan is set for its third month of gains vs the dollar, but the greenback itself is enjoying its biggest monthly rise since July vs a basket of currencies, boosted by trade war-led flows and robust data implying the Fed will push back against any further rate cuts in the near term.

The yen is flat but crawling back towards a six-month low hit earlier this week. The euro too remains unchanged so far but could get some direction if euro zone flash inflation data rises as is forecast to 0.9% from 0.7% in October.

Core prices are forecast to edge up to 1.2% in what will be welcome news for new ECB boss Christine Lagarde; inflation may be a very long way off target but at least it’s headed in the right direction.

Unemployment numbers from Germany, Italy and the EU are also due and will be closely watched, given recent concerns about the labour markets resilience.

As for sterling, that’s a bit weaker this morning but has put in a good weekly performance rising 0.6% to the dollar. It’s unlikely to be affected much by the credit and mortgage data due later as all focus is squarely on Brexit. European stocks are opening 0.3% weaker, carrying on from Asia’s selloff.

In the corporate world, Ocado is called 5% higher by traders after the British online grocer signed an agreement with Japan's Aeon Co to help the supermarket operator expand in e-commerce. AIM-listed vehicle rental services firm Redde is seen rising 25% after rival Northgate said it would buy it in an all-share deal.

Shares of Norwegian bank DNB could come under pressure on news that police are probing if any laws were broken in its handling of payments from an Icelandic fisheries firm to Namibia. The investigation follows a report that Icelandic fisheries group Samherji had made illicit payments worth millions of dollars to secure fishing quotas in Namibia.

MSCI emerging equity and currency indexes are heading for a third week in the red, equities are down 1% on the day. Taiwan, Thailand and South Korea bourses all fall more than 1%.

Turkey’s Finance Minister Berat Albayrak says the country will post positive GDP growth in 2019 and this momentum will continue next year and that interest rates will continue to fall. Chile's peso slumped 3.5% overnight after protests broke out again.

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

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