LONDON (Reuters) - World markets have run into sand, struggling to make further headway after the week’s early sprint higher on trade truce hopes and easing recession fears. And while the mood remains sunnier for the most part, there’s plenty of reasons for caution too.
While most signals from Washington and Beijing are that a 'Phase One' trade deal is at hand, it now appears that won't be signed this month and indications are that the much-touted meeting between U.S. President Donald Trump and China's President Xi Jinping may not happen until after the planned NATO summit in London on Dec 3-4.
While the delay is partly just about logistics and a venue, it can also be read as either allowing more time for a more comprehensive agreement or indeed an indication that the two sides are further apart than the public pronouncements suggest.
U.S. officials said last night that a deal is still more likely than not, but it was still possible the two sides would not reach a bargain. Chinese officials this morning indicated that the two sides are talking over how to cancel existing tariffs over several phases but still have not agreed on what if any of those will be part of the so-called ‘Phase One’.
The lingering uncertainty there is matched by slightly more sober assessments of the incoming economic numbers. The release on Wednesday of October service sector surveys from around the world showed emerging weakness in that part of the economy, offsetting the tentative rebound in manufacturing that cheered investors up so much earlier in the week.
As a result, JPMorgan’s all-industry composite PMI index actually dipped 0.3 points last month to 50.8 as a result. JPM said it feared the spillover of weak manufacturing into services was a key risk to the outlook despite the stabilisation of the former, and “cautions that the global economy is not yet poised to rebound.”
Another reality check came from Germany's factories, where September industrial output fell more than forecast and doused this week's more upbeat industrial orders readout for the same month.
The overall picture leaves markets very much in ‘wait and see’ mode. Wall St stocks ended flat overnight, hovering just below recent record highs. Similarly, 10-year Treasury yields remain firm about 1.82% first thing Thursday but are not breaking any new ground for the week so far.
The nods and winks about tariff rollbacks being part of any trade deal left a marginally more positive tilt in Asia stocks trading, but most major indices there also ended flat. Hong Kong underperformed slightly. China’s offshore yuan was a standout gainer, however, strengthening past 7 per dollar again to its best levels since Aug 5 against a slightly weaker dollar more generally.
In Europe, stock futures are up smartly and are pointing to gains of about 0.5% at the open – helped by the reports of negotiations on the tariff cancellations.
The big set piece of the day is likely to be the Bank of England's latest policy decision and quarterly inflation report. Sterling was a fraction weaker going into a meeting, but the BoE is likely caught in as much of a limbo as everyone else in the UK.
The Dec 12 election has created a hiatus in the Brexit saga and it will be very hard make any hard and fast predictions about the outcome of either yet – at least none strong enough to warrant any change of policy.
The election campaign itself, however, is starting to focus on both major parties' pretty hefty future spending plans – with the opposition Labour party stressing an emphasis on more borrowing rather than tax rises to fund its plans for higher public services budgets. The Bank of England is likely to see both plans as yet another reason why monetary policy should stay where it is until the coast is clearer.
On the European corporate front, German industrial company Siemens expects the global economy to weaken in the 12 months after reporting forecast-beating results. The world's largest steelmaker ArcelorMittal warned of weaker demand in its main U.S. and European markets, but its shares are seen opening sharply higher on better-than-expected results.
On the bright side, Lufthansa printed some good earnings numbers, fuelling the airline's shares that were up +1.2% premarket.
In dealmaking, LVMH shares in focus after Reuters reports that Tiffany has asked the French luxury giant to raise its $14.5 billion offer, calling the offer "too low". In the UK, Rolls-Royce is seen falling 4% after a profit warning, while Sainsbury's profit miss is likely to put shares under pressure.
— A look at the day ahead from EMEA Markets Editor Mike Dolan. The views expressed are his own —