World markets tip-toed into what’s likely to be a pivotal week for the U.S.-China trade war and Brexit, after Friday’s U.S. employment report for September offered an equivocal picture of the U.S. economy.
Before the European open on Monday, MSCI’s all-country stock index was just in the black after recording its best one-day gain in month on Friday. The dollar’s DXY index regained all of Friday’s losses, while 10-year U.S. Treasury yields stayed subdued just above 1.51%.
The September U.S. jobs report offered something for bull and bears alike, with moderate payrolls growth missing forecasts but offset by an unexpected drop in the jobless rate to 3.5% - its lowest since 1969.
The main takeaway was that it was soft enough to keep the probability of another Fed interest rate cut later this month at around 80% but strong enough to allay the worst fears of an economy about to fall off the cliff.
Wall Street stocks rallied, with the 1.4% gain in the S&P 500 the biggest since Aug. 16. The Vix volatility gauge subsided by more than 2 points to 17%.
All eyes were on the resumption of U.S.-China trade talks on Thursday and Friday. Asian markets were tentative first as the positive vibes from Wall Street were doused by a Bloomberg report that Beijing officials were increasingly reluctant to agree a broad trade deal with U.S. President Donald Trump.
The next presidential election is a little over a year away, and weekend reports of a second whistleblower coming forward to support impeachment moves by Congress, over Trump’s alleged attempts to get Ukraine to interfere with the election, the incentive for Beijing to make big concessions now is expected to dwindle.
Shanghai and Hong Kong markets remained closed on Monday for the last day of the week-long National Day holidays, but China’s offshore yuan gave back all its gains from Friday to trade at 7.12 per dollar.
In Europe, it could prove a critical week in the Brexit showdown, too. French President Emmanuel Macron gave UK PM Boris Johnson a week to bridge gaps between his latest compromise proposals and European Union red lines over the Irish border and other issues.
Crucially, Macron declined a direct meeting and insisted the UK officials continue to work with EU Brexit negotiator Michel Barnier before any round-the-clock push for an agreement at the Oct. 17-18 EU summit.
Johnson continues to insist he will take the UK out of the EU with or without a deal on Oct. 31, even though he’s legally bound by a parliamentary act to seek an extension if no agreement is reached by the summit. Sterling was weaker against the dollar and euro first thing as the endgame plays out.
Euro/dollar was steady at just below $1.10, after another dour signal from the euro zone’s largest economy. German industrial orders fell 0.6% in August, more than forecast, stoking speculation of a worsening industrial recession on the continent.
The big debate in Europe now is whether the European Central Bank is near maxed out with monetary easing to support the economy into another downturn and whether euro zone governments can step up fiscal spending to take the pressure off. A changing of the guard at the top of the ECB is seeing hawkish factions within the bank flex their muscles and critics of the ECB’s easing turn up the heat.
On Friday, six former euro zone central bankers criticised the ECB’s policy under outgoing President Mario Draghi, saying it has been unsuccessful and probably aimed at bankrolling indebted governments. Former IMF chief Christine Lagarde takes over the ECB later this month. Euro zone stocks opened lower on Monday. Benchmark bund yields were steady.
In the European corporate world, Austria's AMS was struggling with its Osram takeover attempt and SIG warned on full-year profit as construction activity lagged. Shares in Safilo will be closely watched after they rose almost 12% on Friday -- speculation cooled that France's Kering might be looking at the Italian company as a possible takeover target.
It is still unclear from pre-market data whether reports that HSBC plans to cut 10,000 jobs will have much of an impact. Bayer was seen rising after a pending U.S. lawsuit over claims related to its glyphosate-based herbicide Roundup was delayed.
— A look at the day ahead from EMEA markets editor Mike Dolan. The views expressed are his own —