November 25, 2019 / 8:42 AM / 21 days ago

Daily Briefing: Finding a level

LONDON (Reuters) - A relatively bright start to the week for world markets underlines what is shaping up to be a pretty benign year-end for investors, already on course for one of the best year’s for global equity of the past decade as we head into the Thanksgiving holiday stateside on Thursday.

FILE PHOTO: A trader works on the floor of the New York Stock Exchange, November 21, 2019. REUTERS/Lucas Jackson

Trade war ping-pong aside, the picture painted of the global economy, earnings and monetary policy appears to have found an equilibrium of sorts.

The November flash business surveys from around the world, released on Friday, continue to point to sluggish growth – a bit better than forecast in the United States and a bit below consensus in Europe – but supporting the thesis that sentiment troughed as we entered the final quarter and easing the worst fears of a 2020 recession.

Citi’s economic surprise indices also show that market consensus is more accurately capturing the state of the world economy. The aggregate surprise index for G10 major economies and for the U.S. index itself are both close to zero, where they have hovered for the past month at least.

The euro zone is more negative, but only half the depth of a month ago. The standout deterioration has been in the UK index, which has slumped to its weakest reading in three months as next month’s election approaches.

Otherwise, the main central bank settings also appear to be broadly on hold. European Central Bank chief Christine Lagarde indicated as much in her first major policy speech on Friday, with the now widely flagged emphasis on getting government spending to take the pressure off monetary policy.

U.S. Federal Reserve chairman Jerome Powell speaks later on Monday, but few see any further easing of Fed policy on the immediate horizon after three interest rate cuts this year.

And so on a macro basis, the elephant in the room remains the U.S.-China trade war.

While hopes for an immediate ‘Phase One’ deal have gone a bit cold amid negotiating snags and concerns over Washington pressure surrounding the Hong Kong protests, there are also reports that the looming Dec. 15 tariff hikes may be postponed too to allow talks more space to progress into early next year.

Pro-democratic winning candidates gather outside the campus of the Polytechnic University in Hong Kong, November 25, 2019. REUTERS/Adnan Abidi

On the other hand, the Global Times, a tabloid run by the ruling Communist Party's People's Daily, said a phase one trade deal was "very close". Shanghai stocks gains almost 1 percent on Monday, with Tokyo’s Nikkei up by a similar amount and Hong Kong and South Korea’s main indices advancing more than 1 percent each.

European stock futures were up smartly too. Ten-year U.S. Treasury yields nudged higher. China’s offshore yuan was firmer. The dollar’s DXY index gave back some of Friday’s sharp gains, allowing euro/dollar to cling on to $1.10 even as dollar/yen pushed higher.

Sterling steadied after the PMI-related retreat, with few sparks from the election campaign to add any new direction on that front.

South Africa’s rand rallied in early trade after S&P Global Ratings decided on Friday to downgrade the country’s credit outlook instead of lowering its sovereign rating, as many had feared.

On the European corporate news front, luxury stocks will be on the watch-list after LVMH reached a definitive agreement to buy U.S. jewellery chain Tiffany in a $16.2 billion deal that is the largest takeover ever the acquisitive French group. One trader sees LVMH and the whole sector rising as much as 2% at the open.

Meanwhile, Novartis agreed to buy U.S. biotechnology company The Medicines Co for about $9.7 billion, as it seeks to expand its portfolio of medicines against cardiovascular disease. Novartis shares were down 3.2% in premarket trade.

Elsewhere, debt-ridden telecoms company Altice said it would buy French fibre wholesale operator Covage for around 1 billion euros, while freshly privatised French lottery operator FDJ agreed to buy software publisher Bimedia.

Shares in Prysmian are expected to get a boost fter its troubled Western Link high voltage connection was taken over by clients. Eyes also on Italian toll road operator SIAS after a bridge on one of its highways collapsed on Sunday following a massive landslide. No casualties were reported.

 

— A look at the day ahead from EMEA Markets Editor Mike Dolan. The views expressed are his own —

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