iftttwall

While the media is celebrating markets notably higher, market-watchers are paying attention to the total lack of follow-through since the initial surge at last night’s futures open. The S&P futures is still glued around the Maginot Line of 2800…

…exactly what one “base case” (which correctly predicted that a Truce – in which existing tariffs stay in place – is the most likely outcome with a 70% chance, while also accurately predicting a 3 month ceasefire), the agreement will be enough to get the S&P to 2,800…

But, as Bloomberg’s Garfield Reynolds notes, the rally in risk assets triggered by a ceasefire in the U.S.-China trade war looks overblown. An enormous amount of work remains before a lasting peace can be reached, making Monday’s moves difficult to trust.

Those tempted to believe a Santa Claus rally will wipe out a lot of 2018’s pain should note that little of substance has changed. The U.S. and China weren’t even able even to agree on a joint statement, and China has censored the American embassy’s web post on the leaders’ talks.

The main thing both sides agree on, it seems, is a desire for the bleeding in equities to stop. The problem then becomes that every rally breeds the seeds of its own doom, by reducing the impetus for a deal.

Monday’s feverish market reaction obscured a slew of dreadful data that underscored just how much damage the trade war has already done.

• PMIs out Monday for South Korea, Taiwan and Malaysia all came in notably weak, following the lead from China’s official PMI on Friday.

• South Korean trade data over the weekend missed estimates and included the first drop in exports to China for more than two years.

• Japan’s capital spending also missed badly.

Global growth is slowing, with Asia bearing much of the brunt, amid disruptions to supply chains that may even worsen should companies try to reverse moves made earlier in the year aimed at coping with tariff hikes.

A 90-day truce won’t provide the clarity businesses need as they put the finishing touches on planning for next year.

The size of Monday’s rebound itself demonstrates just how dangerous the confrontation between the U.S. and China is for the global economy.

Even if the truce does lead to a long-term resolution, the damage already done looks too deep to be overcome as rapidly as the current rebound seems to be pricing in.

So Monday’s action has the potential to turn into a head-fake rally that ends up leaving equities worse off than they were before the G-20.

via RSS https://ift.tt/2E9XOT7 Tyler Durden

Authord by Bloomberg’s Michael Msika

Forget Brexit and Italian populists for a second. It’s worth paying attention to what’s going on in France.

For more than two weeks, the country has been disrupted by an unusual protest: the so-called “Gilets Jaunes” or “Yellow Vests.” France is used to labor unrest and chaos affecting transport of course, with strikes something of a national pastime.

But this time it’s different.

Some 100,000 people blocking toll roads, petrol stations and crossroads is creating major disruption to transport and retail. It’s also proving to be extremely tricky to defuse, as there’s no single protest leader to negotiate with.

For investors, the question is whether it could derail the outperformance of French equities in 2018. One thing is clear. These protests are a real threat to the country’s retailers, including Carrefour and Casino, which are already busy battling a price war and trying to fend off Amazon.com’s efforts to penetrate their home market. Big-box retailers have been hurt by the demos and blockages throughout the country, with customers denied access to some hypermarkets and supermarkets for entire days at a time. They recorded an average fall in consumer-good sales of 35 percent on Nov. 17 and of 18 percent the following Saturday, according to Nielsen data.

All this is adding to the perception of shrinking purchasing power in France, in particular among people on lower incomes. And that “doesn’t bode well” for the year-end holiday retail season, which needs a boost after the unseasonably hot weather of the previous months, according to Invest Securities. In fact, consumer confidence has been depressed since the summer, and this might be the final straw.

The impact on toll roads is harder to quantify, as demonstrators have been regularly opening them to let cars pass freely. Vinci is the largest operator in France and although motorway concessions only account for about 13% of its 2017 revenue, they generated more than 59 percent of its Ebitda. So brace yourself for an impact on earnings if the unrest gains traction.

The protests started on Nov. 10 with thousands of demonstrators demanding lower gasoline prices and taxes. Demonstrators marched on Paris’s Avenue des Champs-Elysees two weeks later, triggering social unrest. Surprisingly, the protest is benefiting from a significant backing, with 84 percent of the French public calling it “justified,” according to Odoxa-Dentsu poll for Le Figaro.

Further rioting over the weekend shows the movement is spinning out of control.

If this movement snowballs like we’ve seen in Italy with the Five Star Movement, Macron will have his hands full handling a crisis at home and have less time for the matters of the euro zone. After Greece, Brexit and Italy, this is another front that Europe didn’t need.

This is something to keep in mind, although today, the market will be focused on positive developments coming out from the G-20 meeting. Commodities, Asian equities and U.S. futures are rallying. Euro Stoxx futures are trading up 2% ahead of the European open

via RSS https://ift.tt/2Srt6bc Tyler Durden

While markets are still digesting the outcome from the Trump-Xi meeting, attention will quickly turn to a number of potentially interesting  events  for  markets  including  the  OPEC/OPEC+  meeting, the November jobs report in the US, the global November PMIs and Fed Chair Powell’s speech before Congress (which some claim has been pushed back from Wednesday to Thursday as the market will be closed on Wednesday to commemorate the death of George H.W. Bush).

With stocks soaring this morning on the favorable “truce” outcome from this weekend’s Trump-Xi dinner and to a lesser extent, the consensus G-20 communique signed in Buenos Aires, the next big event for markets next week is likely to be the OPEC/OPEC+ meeting on Thursday and Friday in Vienna. It’s possible that we get some early hints as to what to expect out of the G20 over the next couple days, however the big question facing the market is whether a consensus can be formed between Saudi Arabia, Russia and the US, especially with US President Trump recently raising the pressure level on Saudi Arabia to keep prices low through raising production- a strategy which has seemingly worked with WTI over 30% lower in the last two months.

As for the big data highlight, in light of what appears to be a noticeable shift in tone at the Fed to a more dovish leaning, particularly after Powell’s speech this week, and also coming off the back of a slight hiccup in the latest PCE data, expect there to be plenty of focus on the November employment report on Friday. Consensus is for a 205k reading following a stronger-than-expected 250k reading in October. For earnings, the consensus is currently pegged at a +0.3% mom average hourly earnings reading, which would be enough to nudge up the annual rate to +3.2% yoy. The unemployment rate is expected to hold steady at 3.7% with hours also expected to be unchanged at 34.5 hours.

Powell was scheduled to testify on Wednesday to a congressional Joint Economic Committee. But the hearing is expected to be postponed to Thursday because major exchanges will be closed on Wednesday in honor of former U.S. President George H.W. Bush, who died on Friday at the age of 94. Last week, Powell backed the Fed’s gradual tightening but said its policy rate was “just below” a range of estimates of the so-called neutral level that neither stimulates nor cools growth. In response, stocks shot up and largely recovered November’s earlier losses.

Deutsche Bank would highlight Powell’s speech as a focal point for the week however in light of his dovish comments on November 28th, it would probably be a surprise to see the Fed Chair diverge from his recent views. With that in mind, the market will likely look for reaffirmation that there is a rising risk of a Fed pause as early as the first half of 2019.

As for the other important data points next week, the final global November PMIs should also be closely watched. We’ll get the manufacturing numbers on Monday and services and composite data on Wednesday. For the Euro Area, no change in the flash readings of either the manufacturing (51.5) or services (53.1) is expected. The Italy data is likely to be a focal point however in light of the composite falling to 49.3 in October. Meanwhile, other data worth flagging in the US next week includes the November ISM manufacturing report on Monday along with November vehicle sales, November ADP, Q3 nonfarm productivity and unit labour costs, and November ISM non-manufacturing all on Tuesday, October trade balance, claims and final October durable and capital goods orders data on Thursday, and the preliminary December University of Michigan consumer sentiment report, and October wholesale inventories data on Friday. In Europe the other significant data releases fall on Friday with October industrial productions reports due in Germany and France , along with the final Q3 Euro Area GDP print.

With regards to the remaining Fedspeak next week, on Monday we’re due to hear from Kaplan, Williams, Brainard and Quarles, while on Thursday we’ll hear from Bostic before Brainard speaks again on Friday. Over at the ECB Guindos is due to speak on Thursday, while BoE speakers next week include Haldane on Monday, and Carney and Vlieghe on Tuesday.

Other things worth noting next week include Euro Area Finance Ministers meeting on Monday in Brussels to discuss Eurozone reforms, the deadline for funding to end for some US federal agencies on Friday and Germany’s ruling CDU party electing a new Chair to succeed Merkel on Friday.

Courtesy of Deutsche Bank’s Craig Nicol, here is a summary of key events in the week ahead:

1. Monday: The main data highlight on Monday are the final November manufacturing PMIs in China, Japan, Europe and the US. Away from that we’ll also get October construction spending, the November ISM manufacturing report and November vehicle sales data in the US. Meanwhile, BoE Chief Economist Haldane and the Fed’s Brainard, Quarles, Kaplan and Williams are also due to speak. Euro Area Finance Minsters are also set to discuss Eurozone reforms in Brussels, while NATO foreign ministers meet for a three-day summit.
2. Tuesday: It’s a quiet day for data on Tuesday with the UK’s November BRC like-for-like sales, France’s October YTD budget balance and Euro Area’s October PPI data the only releases scheduled. Away from that, the BoE’s Carney attends a hearing of the Treasury Committee on the UK’s Brexit Withdrawal Agreements, while fellow BoE official Vlieghe is also due to speak.
3. Wednesday: The focus turns back to the remaining PMIs on Wednesday with final November services and composite prints due in China, Japan, Europe and the US. Away from that, we’ll also get Euro Area October retail sales along with final Q3 nonfarm productivity and unit labour costs and the November ISM nonmanufacturing report in the US. The Fed’s Beige Book is also due to be released while Fed Chair Powell testifies before the Joint Economic Committee.
4. Thursday: With no releases of note in Asia on Thursday, the focus in Europe will be on Germany’s October factory orders data. In the US we’re due to get the latest weekly initial jobless and continuing claims readings, November challenger job cuts, October factory orders and the final October durable and capital goods orders data. The ECB’s Guindos will also speak in the morning before the Fed’s Bostic speaks in the early evening. Oil ministers from OPEC/OPEC+ are set to meet in Vienna for a two-day summit to discuss the group’s 2019 output strategy.
5. Friday: It’s a busy end to the week for data on Friday with the November employment report in the US the big highlight. Prior to that we’ll get Japan’s October labour cash earnings data. In Europe the main highlight is the final Q3 GDP revisions for the Euro Area, along with October industrial production prints in Germany and France. Germany’s Q3 labour costs, France’s October trade balance and November house price data in the UK will also be a focus. Finally, in the US, we’ll also get October consumer credit data, the preliminary December University of Michigan survey and final October wholesale inventories and wholesale trade sales data. China’s November foreign reserves data will also be released sometime during the day. Elsewhere, the Fed’s Brainard is due to speak in the evening. Germany’s ruling CDU party will also elect a new chair to succeed Angela Merkel. Friday also marks the deadline for funding to cease for some US federal agencies.

Finally, Goldman highlights the key US events, together with consensus estimates, noting that he key economic releases this week are the ISM manufacturing report on Monday, the ISM non-manufacturing report on Wednesday, and the employment report on Friday. There are several scheduled speaking engagements by Fed officials this week, including Chairman Powell’s testimony before the congressional Joint Economic Committee on Wednesday, an interview with Vice Chairman Clarida on Monday, a speech by Vice Chairman for Supervision Quarles on Monday and Wednesday, and a press briefing by New York Fed President Williams on Tuesday.

Monday, December 3

• 06:30 AM Fed Vice Chairman Clarida (FOMC voter) speaks; Fed Vice Chairman Richard Clarida will be interviewed on Bloomberg TV and Radio.
• 08:00 AM Vice Chairman for Supervision Quarles (FOMC voter) speaks; Fed Vice Chairman for Supervision Randal Quarles will discuss the outlook for the US economy, inflation, and monetary policy, at the Council on Foreign Relations in New York.
• 09:15 AM New York Fed President Williams (FOMC voter) speaks; New York Fed President John Williams will give welcome remarks at the Evolving Structure of the U.S. Treasury Market conference at the Federal Reserve Bank of New York.
• 09:45 AM Markit Flash US manufacturing PMI, November final (consensus 55.4, last 55.4)
• 10:00 AM Construction spending, October (GS +0.4%, consensus +0.4%, last +0.0%); We estimate construction spending rose by 0.4% in October from a flat reading in September, primarily due to a rebound in housing starts in October.
• 10:00 AM ISM manufacturing index, November (GS 57.3, consensus 57.5, last 57.7); Regional manufacturing surveys were mixed on net in November, and our manufacturing survey tracker correspondingly rose by 0.4pt to 58.2 in November. We expect the ISM manufacturing index to decline 0.4pt to 57.3.
• 10:30 AM Fed Governor Brainard (FOMC voter) speaks; Fed Governor Lael Brainard will give the keynote address at the Evolving Structure of the U.S. Treasury Market conference at the Federal Reserve Bank of New York.
• 01:00 PM Dallas Fed President Kaplan (FOMC non-voter) speaks; Dallas Fed President Kaplan will speak at a community forum hosted by the Dallas Fed. Media and audience Q&A is expected.

 
Tuesday, December 4

• 10:00 AM New York Fed President Williams (FOMC voter) speaks; New York Fed President John Williams will hold a press briefing at the New York Fed. Media Q&A is expected.

Wednesday, December 5

• National Day of mourning to honor former President George H.W. Bush. NYSE closed. SIFMA recommends bond markets close. The federal government will also be closed, and it is possible that a number of the following events will be rescheduled.
• 08:15 AM Fed Chairman Powell Testimony to Joint Economic Committee of Congress Released; Fed Chairman Jerome Powell’s testimony to the Joint Economic Committee of Congress will be released at 8:15 AM, for a hearing that begins at 10:15 AM.
• 08:15 AM ADP employment report, November (GS +180k, consensus +195k, last +227k); We expect a 180k gain in ADP payroll employment, reflecting a likely drag from inputs such as claims and lower oil prices used in the ADP model. While we believe the ADP employment report holds limited value for forecasting the BLS nonfarm payrolls report, we find that large ADP surprises vs. consensus forecasts are directionally correlated with nonfarm payroll surprises.
• 08:30 AM Nonfarm productivity (qoq saar), Q3 final (GS +2.2%, consensus +2.3%, last +2.2%); Unit labor costs, Q3 final (GS +1.1%, consensus +1.0%, last +1.2%); We estimate non-farm productivity rose 2.2% (qoq ar) in Q3, in line with the prior print, and above the +0.75% trend achieved on average during this expansion. We expect unit labor costs to be revised down 0.1pp to +1.1%.
• 09:45 AM Markit Flash US services PMI, November final (consensus 54.4, last 54.4);
• 10:00 AM ISM non-manufacturing index, November (GS 58.5, consensus 59.1, last 60.3); Our non-manufacturing survey tracker decreased by 0.2pt to 56.5 in November, following mixed regional service sector surveys. The tracker remains 3.8pt below the October reading of the ISM non-manufacturing index, and indicates that there may be some “catch-down,” though likely to levels still consistent with a firm pace of expansion in business activity. Weak stock market performance and lower oil prices are also likely to weigh on the index. We expect the ISM non-manufacturing index to move down by 1.8pt to 58.5 in the November report.
• 02:00 PM Beige Book, November FOMC meeting period; The Fed’s Beige Book is a summary of regional economic anecdotes from the 12 Federal Reserve districts. The October Beige Book reported growth at a modest to moderate pace across the country and noted a positive outlook for near-term growth. Contacts continued to report uncertainty over the trade environment. Labor markets were again described as tight throughout the country. Wage growth was overall modest to moderate, and price increases were also modest to moderate across regions, though most Districts reported increased price pressures. In the November Beige book, we look for additional anecdotes related to growth, labor markets, wage growth, price inflation, and trade policy uncertainty.
• 05:15 PM Vice Chairman for Supervision Quarles (FOMC voter) speaks; Fed Vice Chairman for Supervision Randal Quarles will speak at Stanford. Text and audience Q&A are expected.

Thursday, December 6

• 08:30 AM Initial jobless claims, week ended December 1 (GS 230k, consensus 225k, last 234k); Continuing jobless claims, week ended November 24 (consensus 1,695k, last 1,710k); We estimate jobless claims edged down by 4k to 230k in the week ended December 1, following a 10k increase in the prior week. We expect energy-sector layoffs to boost jobless claims in upcoming reports, and the underlying trend may be picking up at the margin in other sectors as well.
• 10:00 AM Factory Orders, October (GS -1.5%, consensus -2.0%, last +0.7%); Durable goods orders, October final (consensus -2.4%, last -4.4%); Durable goods orders ex-transportation, October final (consensus +0.1%, last +0.1%); Core capital goods orders, October final (last flat); Core capital goods shipments, October final (last +0.3%): We estimate factory orders decreased 1.5% in October following a 0.7% increase in September. Durable goods orders decreased in the October advance report, driven primarily by a decrease in aircraft orders. Core measures were also somewhat soft, with core capital goods shipments increasing 0.3% and core capital goods orders flat.
• 12:15 PM Atlanta Fed President Bostic (FOMC voter) speaks; Atlanta Fed President Raphael Bostic will discuss the national outlook at a conference in Atlanta.
• 06:30 PM New York Fed President Williams (FOMC voter) speaks; New York Fed President John Williams will hold a discussion with former Bank of England Governor Mervyn King at the New York Fed. Media Q&A is expected.
• 06:45 PM Fed Chairman Powell (FOMC voter) speaks; Fed Chairman Jerome Powell will give brief welcome remarks at a housing conference in Washington DC. Prepared text is expected.

Friday, December 7

• 08:30 AM Nonfarm payroll employment, November (GS +185k, consensus +200k, last +250k); Private payroll employment, November (GS +180k, consensus +200k, last +246k); Average hourly earnings (mom), November (GS +0.3%, consensus +0.3%, last +0.2%); Average hourly earnings (yoy), November (GS +3.2%, consensus +3.1%, last +3.1%); Unemployment rate, November (GS 3.7%, consensus 3.7%, last 3.7%): We estimate nonfarm payrolls increased 185k in November (mom sa), compared to its 6-month average pace of +216k. Underlying job growth may have slowed somewhat, given rising jobless claims, mixed employment surveys, and tighter financial conditions. Additionally, we expect unseasonably high snowfall in the Northeast and Midwest to weigh on payrolls in this week’s report. On the positive side, we expect strong retail hiring ahead of the holiday season (despite a continued drag from store closings), and we note some additional scope for rebounding employment levels in states affected by Hurricanes Florence and Michael.
• We expect the unemployment rate to remain at 3.7% in this week’s report, as we believe the pace of job growth remains above the demographic trend, and the participation rate (62.9%) appears somewhat elevated and may retrench. That being said, we believe the risks are skewed towards a higher jobless rate this month, given the 72k increase in continuing claims from survey week to survey week. Finally, we estimate average hourly earnings increased 0.3% month over month and 3.2% year-over-year. This forecast reflects somewhat positive calendar effects, scope for a rebound in supervisory earnings (after sequential weakness in October), and a modest boost from hourly wage hikes at Amazon.
• 10:00 AM Wholesale inventories, October final (consensus +0.7%, last +0.7%)
• 10:00 AM University of Michigan consumer sentiment, December preliminary (GS 97.4, consensus 97.0, last 97.5); We expect the University of Michigan consumer sentiment index to edge down 0.1pt to 97.4. Other indicators of consumer confidence, such as the Conference Board measure, also suggest a small decrease for the index from its November level. The report’s measure of 5- to 10-year inflation expectations stood at 2.6% in November.
• 12:00 PM Fed Governor Brainard (FOMC voter) speaks; Fed Governor Lael Brainard will discuss current financial stability issues at the Peterson Institute in Washington DC.

Source: MS, GS, DB

via RSS https://ift.tt/2RAVUOF Tyler Durden

Authored by Dmitry Speck via Acting-Man.com,

A Plethora of Headaches

We hope the recent market turmoil is not giving our readers too much of a headache. As you are no doubt aware, the events of the last few weeks have made maneuvering around global markets rather difficult.

A less than happy NYSE floor trader [PT]

The US faces uncertain economic times, as Trump and Xi Jinping remain locked in a bitter trade dispute that is likely to go on for some time, creating uncertainty for the future of economic relations between the world’s two biggest economic powerhouses [ed note: over the weekend news emerged that Trump and Xi agreed on a truce and no further escalation in the dispute should be expected for the time being, but it remains to be seen whether the hatchet will remain buried for good].

On the other side of the Atlantic, Brexit is still not off table – on the contrary, it has proved to be an endless saga which has been in the media spotlight for almost two and a half years now. On top of that, Italy’s budget drama is giving the markets the jitters, as is the latest confrontation between Russia and the Ukraine.

The USD is rallying strongly against this backdrop, which is contrary to its typical behavior at this time of the year. What should one make of this development? Will the US dollar continue to appreciate, or will its usual pattern of a seasonal decline at the end of the year prevail?

The Euro Typically Rallies at the End of the Year and Falls Again Immediately Thereafter

The chart below illustrates the seasonal trend of the euro relative to the US dollar. It is not the type of price chart one usually encounters. Rather, the seasonal chart depicts the average trend in the euro in the course of a calendar year.

The horizontal axis shows the time of the year, the vertical axis the average percentage move in in the exchange rate over the past 43 years. In this way the seasonal trends of the euro can be discerned at a glance.

Euro vs. US dollar, seasonal trend over the past 43 years. A strong seasonal uptrend in the euro is in evidence at the end of the year.

The period of seasonal strength in the euro at year-end is highlighted in blue. This phase begins on November 27 and ends on December 31.

Thereafter the euro typically declines again. If you look closely at the chart, you will notice that the change in trend occurs precisely at the turn of the year. This is quite conspicuous and there has to be a reason for it – more on this further below.

Strength in the Euro at the End of the Year is no Coincidence

The average gain in the seasonally strong period between November 27 and December 31 amounts to 1.24 percentage points – quite a sizable amount, as currencies tend to be far less volatile than e.g. stocks.

The following bar chart shows the percentage moves in the exchange rate in the period November 27 – December 31 for every year since 1975.

Euro vs US dollar: percentage return between 11/27 and 12/31 for every year since 1975. The euro typically rallies at year-end.

The green bars indicate gains. They predominate both in terms of size and frequency. This makes clear that the euro’s seasonal rally at the end of the year  is not generated by a handful of statistical outliers. What is the reason for the euro’s strength at this time of the year though?

What Drives the Euro’s Seasonal Rally at the End of the Year

The fact that the euro turns down vs. the US dollar again, right at the turn of the year already hints at the likely cause of this seasonal pattern. It has to be directly linked to the calendar. And what happens at year-end? It is the balance sheet date!

The euro’s year-end rally inter alia has to do with US tax legislation. Many US companies are able to reduce their tax liability by understating certain financial figures as much as possible at the reporting date. In this context it can be worthwhile to transfer funds to the accounts of foreign subsidiaries.

The associated increase in demand for the euro naturally has an effect on its exchange rate. Therefore,  the euro typically strengthens against the dollar late in the year.

After the turn of the year, the tide immediately turns again as companies reverse these transfers of funds. The typical move in the euro’s exchange rate against the US dollar is therefore primarily a result of tax avoidance strategies practiced by US companies.

via RSS https://ift.tt/2DYLe8w Tyler Durden

Heading into this weekend’s historic Trump-Xi dinner date, Goldman was skeptical, stating that it was “too soon for a deal” and while it said the odds of a truce were just under 40%, it gave better than even odds of further escalation stating that “it is slightly more likely that the talks end with an optimistic tone but that there is no immediate commitment to delay the step-up in the tariff rate to 25%.” Goldman did hedge, however, saying that “we view this as a reasonably close call.”

And with one look at futures this morning following a summit conclusion that kicked the can on new tariffs and rate hikes by 90 days, it’s a good thing it did (unlike JPM which correctly predicted truce odds were 70%, forecasting that the market’s most likely reaction would be to send the S&P to 2,800 which is precisely where the ES is stuck now).

So what does Goldman think happens next? Perhaps not surprisingly, while the central banker incubating hedge fund tacitly admits its gloomy forecast was misplaced and praises the near-term can-kicking, the bank retains its overall pessimism and in its post-mortem writes that “this outcome is closest to the “pause” scenario we outlined in recent comments although the length of the pause is fairly short” and notes that while “the result shows the willingness of the two sides to reach a deal” Goldman still thinks that “finding a mutually agreeable compromise that leads to a comprehensive rollback of tariffs will be challenging.”

As part of its hot take, Goldman lists the tentative agreements that were reached on a “few less controversial issues” including:

• Chinese purchases of US products. The US press release stated “China is to purchase a very substantial amount of agricultural,  industrial and energy products” from the US. The White House appears to expect purchases of agricultural products to start  immediately. No quantity or specific commodities were mentioned, but purchases are likely to involve more meat, especially pork,  products, given there has been an ongoing swine flu outbreak in China which led to the slaughtering of large amount of pigs and  higher demand for alternative protein sources. Soybean purchases also seem likely, as they have been among the most politically  important aspects of China’s retaliatory tariffs on US exports. This could also signal a partial unwinding of China’s retaliatory tariffs, which targeted agricultural products in earlier rounds.
• China will make fentanyl a controlled substance. China’s drug control is concentrated in traditional substances and awareness  of use of such substances as drugs among the general public and officials is low. Traders have been arbitraging this regulatory gap and exporting this substance to the US. This is not viewed as a big issue in China and given the US focus it is easy to understand that President Xi agreed make this move.
• The US press release quoted President Xi as saying that, should the Qualcomm NXP merger request be presented to him, he is open to approving it. Official Chinese media reports did not mention this issue.
• Reporting from Xinhua suggests that the US agreed to continue to welcome Chinese students in the US. This comes following recent reporting in the US media that the White House could soon announce new restrictions. The US statement does not mention this. Xinhua also states that the US has pledged to continue to respect the “One China” policy regarding Taiwan as part of this understanding, though the US statement does not mention this.

That said, Goldman echoes our own take from Sunday, specifying that there appears to have been no concrete progress on the other important issues of market access, IPR protection, cyber attacks, and forced technology transfer (the latter two US concerns have always been denied by Chinese policymakers) which are left for working level officials to work out in the next 90 days.

So, as Goldman’s political analyst Alec Phillips summarizes, “the actual amount of concrete progress made at this meeting appears to have been quite limited, as expected.“

Furthermore, Goldman also notes that “while the Xi-Trump dinner has clearly improved the tone of the US-China relationship for the time being, and we would expect an initial positive market reaction” – correctly, with the S&P set for another torrid surge this morning – the “pause” prolongs the period of uncertainty around the eventual structure of trade relations between the two countries. Specifically, Goldman warns that “the specter of higher and broader US tariffs remains, and the underlying issues clouding the trade relationship are deferred to further negotiations. With additional time to pursue negotiations, we think the chance of a comprehensive deal that involves rollback of tariffs is slightly higher than before, but still not our base case—perhaps a 20% probability over the next three months.” And, notably, Goldman points out that while the Chinese statement referred to both sides agreeing to “work toward scrapping all tariffs”; the US did not.

So with a comprehensive deal unlikely to be announced some time in late March, Goldman believes that “the two most likely outcomes in our view continue to be a continuation of the “pause” that was just announced— i.e. a partial agreement that forestalls further escalation but does not eliminate existing tariffs—or incremental escalation, involving the eventual step-up to the 25% tariff rate on $200bn of imports already subject to 10%.”

While it is a close call which of these is more likely, at the margin it seems slightly more likely (just over 50% probability) that the talks will falter when they reach more difficult issues and that the step-up to 25% will still occur in March or beyond.

Even so, the bank concedes that its initial skepticism may have been overdone, and adds that between the possibility of a continued “pause” and the possibility that an agreement is reached after the step-up to 25% occurs (if it occurs), the probability of tariffs on imports from China beyond the $250bn already affected has decreased in our view.

One final point: the outcome of the 90-day negotiations will likely be affected by how the markets and domestic political sentiment react, as the response “may influence the willingness of both sides, particularly President Trump, to reach a deal in the future.”

On the other hand, Goldman hedges one more time, cautioning that “to the extent either country sees the other as particularly keen to make a deal, its policymakers may try to drive a harder bargain, making an eventual compromise more difficult.”

The bank concludes that regardless of the near-term outcome, “the US-China announcements send a constructive signal regarding the eventual outcome of these talks, and strengthen our view that President Trump is likely to want to conclude an agreement—even if it does not include a full rollback of tariffs—well ahead of the 2020 presidential election.”

via RSS https://ift.tt/2SlVZWa Tyler Durden

As President Trump continues to celebrate his weekend “trade truce”, more details about the negotiations with China set to take place over the next 90 days are beginning to take shape. During an interview on NPR’s “Morning Edition,” White House Advisor Peter Navarro said US Trade Rep. Robert Lighthizer will lead the US delegation during the upcoming talks with China.

White House aide Peter Navarro to @MorningEdition on China trade deal: US Trade Rep. Robert Lighthizer will lead 90 day talks with China. China’s president Xi gave responses to 142 US trade complaints; now they must negotiate them or US says will go ahead with 25% tariffs. @npr

— Steve Inskeep (@NPRinskeep) December 3, 2018

Navarro also claimed that Chinese President Xi Jinping has offered responses to 142 US trade complaints, and that the two sides must now negotiate more equitable trade terms for both sides, or the US will move ahead with its 25% tariffs. Meanwhile, Trump continued his twitter “victory lap” by tweeting that the US’s relationship with China has taken a “BIG leap forward!”

My meeting in Argentina with President Xi of China was an extraordinary one. Relations with China have taken a BIG leap forward! Very good things will happen. We are dealing from great strength, but China likewise has much to gain if and when a deal is completed. Level the field!

— Donald J. Trump (@realDonaldTrump) December 3, 2018

The president also emphasized that struggling US farmers will see immediate relief as China begins purchasing US agricultural products again.

Farmers will be a a very BIG and FAST beneficiary of our deal with China. They intend to start purchasing agricultural product immediately. We make the finest and cleanest product in the World, and that is what China wants. Farmers, I LOVE YOU!

— Donald J. Trump (@realDonaldTrump) December 3, 2018

However, as often happens with the Trump administration, Treasury Secretary Steven Mnuchin sent a conflicting signal on Monday morning during an interview with CNBC when he said that Trump would be leading the trade talks. He added that he hopes there will be a “real agreement” with China in the near future (as opposed to the “fake agreement” we have now?)

 

 

 

 

 

via RSS https://ift.tt/2Qbk71g Tyler Durden

The Pentagon has announced US forces in Eastern Syria have killed a key ISIS leader responsible for beheading an American aid worker and former Army Ranger. 

“Earlier today, coalition air forces conducted precision strikes against a number of ISIS leaders in southeast Syria. Those targeted included Abu al-Umarayn,” anti-ISIL special presidential envoy Brett McGurk said in a statement late on Sunday. A Pentagon spokesman further confirmed, “Al Umarayn had given indications of posing an imminent threat to coalition forces and he was involved in the killing of American citizen and former US Army Ranger, Peter Kassig.”

In 2014 Abu al-Umarayn had overseen several executions of westerners captured in Syria, including American aid worker Peter Kassig, who was shown in a “Jihadi John” (or Mohammed Emwazi) execution video. Unlike other ISIS and al-Qaeda execution videos, the beheading itself wasn’t filmed, just the aftermath which included a masked Jihadi John standing over a severed head saying, “This is Peter Edward Kassig, a US citizen.”

Kassig had been abducted on his way to the Syrian city of Deir al-Zor on October 1, 2013 while part of a humanitarian group he founded which sought to supply food and supplies to internally displaced Syrians. He had entered Syria at a time when the western press had romanticized the “rebels” (the FSA in particular) as “freedom fighters” yet who in reality were cooperating with ISIS, resulting in a number of high profile kidnappings of western aid workers and reporters. 

Umarayn was considered a senior ISIS official still organizing operations even as ISIS has gone largely underground with the rapid advance of Syrian and Russian forces across the country. 

The Pentagon further said the airstrikes in eastern Syria killed “several other ISIS members” — something which the Syrian government is now disputing, as also on Sunday state-run SANA news reported US coalition jets fired “several missiles” targeting Syrian Army positions in  in the eastern Homs countryside south of al-Sekhneh, causing “material damage” but no deaths or injuries, according to the report. 

Syrian media stated the following: 

The US-led “International Coalition” launched a new aggression against positions of the Syrian Arab Army in Homs eastern countryside in support of the terrorist organizations, on top of Daesh (ISIS) which is a tool to implement its schemes in the region.

Both Syria and Russia have long accused the American military presence in eastern Syria — which now standings at multiple thousands of troops and support personnel occupying a region the size of Croatia — of protecting remnant ISIS pockets instead of rooting them out. This, say Syrian and Russian sources, is to continue to fuel a jihadi insurgency against Damascus and Iranian allies as a proxy force and buffer. 

The Pentagon denied the Syrian government charge that its operations were in support of ISIS and not aimed at rooting out the terror organization.

via RSS https://ift.tt/2Q6kgD3 Tyler Durden

Long-suffering European auto stocks ripped higher on Monday as they headed for their best session in over two years following a late night tweet from President Trump claiming that China had agreed to lower its punishing 40% tariff on US-made cars. Ironically, shares of German companies like Daimler and BMW outperformed US auto stocks because many of the cars they export to China are manufactured in the US.

“China has agreed to reduce and remove tariffs on cars coming into China from the U.S. Currently the tariff is 40%,” Trump said.

China has agreed to reduce and remove tariffs on cars coming into China from the U.S. Currently the tariff is 40%.

— Donald J. Trump (@realDonaldTrump) December 3, 2018

Adding some confusion to the president’s claim, a top Chinese trade official declined to comment on the Trump tweet during a morning press conference, which failed to dent the upward momentum. Trump tweeted after China and the US agreed to a “temporary” 90-day trade truce where China agreed to buy more US agricultural products to try and help narrow its trade surplus with the US while Trump agreed to suspend a planned increase and expansion for US tariffs.

Beijing raised tariffs on U.S. auto imports to 40% in July, forcing many carmakers to hike prices in a major hit to the roughly $10 billion worth of passenger vehicles the United States sent to China last year. Last week, China called for a “negotiated solution” to the trade standoff, saying its tariffs on US-made cars would be only 15% if not for the trade spat (Chinese policy makers earlier this year had agreed to lower tariffs on US cars before the trade war erupted in the spring).

As Bloomberg pointed out, a reduction in Chinese tariffs would benefit Daimler and BMW more than US carmakers like General Motors and Ford, as the German luxury brands dominate the top 10 list of car imports to China.

Meanwhile, Chinese carmaker shares pared their gains, while shares of Chinese car dealerships climbed, as the threat of increased competition weighed on carmakers’ shares.

Elsewhere, Angela Merkel said around midday in Europe that a planned meeting between Germany auto company leaders and Trump on Tuesday wouldn’t focus on tariffs which probably means that the only thing they will take about is, you got it, tariffs.

via RSS https://ift.tt/2AMPmFm Tyler Durden

The Grinch may have stolen Thanksgiving profits, but Christmas came early for markets with world stocks rising over one percent and pushing emerging currencies higher against the dollar, as S&P futures jumped as much as 2%…

… and the Shanghai Composite soared 2.9% after the U.S. and China agreed to halt new tariffs for 90 days. Commodities spiked and the dollar rebounded from session lows. The MSCI’s all-country world index rose 0.9% in its sixth straight day of gains and hit its highest level since Nov. 9 while emerging equities rose 2.1% and were set for their strongest day in a month.

The gains came after China and the United States agreed during a Saturday dinner at the G-20 in Argentina to halt additional tariffs on each other. The deal prevents their trade war escalating as the two sides try to bridge differences with fresh talks aimed at reaching a deal within 90 days. If no deal is reached, Trump warned that the US will resume escalation, and hike tariffs to 25% from 10%.

“We have a deal. That’s wonderful news for global financial markets and signaling the start for a year-end rally in risky assets,” said Bernd Berg global macro strategist at Woodman Asset Management. “We are going to see a rally in emerging market and U.S equities, EM currencies and China-related assets like Australia. I expect the rally to last until year-end.”

Oil soared 4% higher after dipping below $50 briefly last Friday, jolted by efforts across the globe to support prices as Saudi Arabia and Russia extended their pact to keep production low (although without providing details ahead of this week’s OPEC+ meeting, while Canada’s largest producing province ordered unprecedented supply cuts. Optimism was dented slightly after Qatar said it was quitting OPEC, just as the group prepares to meet this week.

The risk-on mood initially drove the U.S. dollar as much as 0.4% lower against a basket of currencies before trimming some losses. The greenback was already under some pressure from the recent shift in the Fed’s policy communication to a slightly more dovish stance. Comments by Federal Reserve Chair Jerome Powell were interpreted by markets as hinting at a slower pace of rate hikes.

Emerging currencies were among the main beneficiaries of dollar weakness, with an MSCI index up 0.6 percent. It was led by China’s yuan which rose one percent for its biggest daily gain since Feb. 2016.

The euro pared a gain after data showing manufacturing activity slowed, with factory growth stumbling again in November, as business confidence remains the weakest in 6 years.

“Such positive sentiment won’t fade very soon … (the 90-day) period is not short, it’s long enough to soothe market sentiment,”  trader at a foreign bank in Shanghai told Reuters.

Powell was scheduled to testify on Wednesday to a congressional Joint Economic Committee but his hearing is expected to be postponed to Thursday because major exchanges will be closed on Wednesday in honor of former U.S. President George H.W. Bush, who died on Saturday.

While some have speculated that the trade war truce would bring back more hikes on the table, others disagreed: Florian Hense, economist at Berenberg, said the market rally would not bring a return to a more hawkish Fed stance. “We would need to see some rebound in economic activity to lift expectations of more rate hikes,” he said.

Maybe not: in a Bloomberg TV interview, Fed Vice Chairman Richard Clarida said the US economy is in “good shape” and the outlook is “very solid” as the central bank is focused on meeting its dual mandate. He added that the concept of a “Powell Put” isn’t a useful concept, noting that the Fed could operate somewhat above 2% inflation goal.

More importantly, Clarida said that the dot plot of Fed interest-rate forecasts “is not going anywhere”, though it may evolve.

Back to markets, where Asian shares kicked off the gains, with Chinese mainland markets rising more than 2.5% while Japan’s Nikkei gained as much as 1.3% to a six-week high.

Miners and automakers led gains in the Stoxx Europe 600 Index after President Donald Trump said in a late-night tweet that China agreed to “reduce and remove” tariffs on imported American-made cars.  The tweet sent the Dax 2.5% higher as auto stocks were set for best day in 2-1/2 yrs on Sino-US trade truce. Just before midnight on Sunday, Trump tweeted that China had agreed to remove car import tariffs, even though in a briefing in Beijing a few hours later, China’s foreign ministry spokesman Geng Shuang declined to comment on any car tariff changes.

China has agreed to reduce and remove tariffs on cars coming into China from the U.S. Currently the tariff is 40%.

— Donald J. Trump (@realDonaldTrump) December 3, 2018

Trump gave no other details in his late-night tweet, which came shortly after he agreed with Xi to a truce in the trade war during a meeting at the Group of 20 summit in Argentina.  Shares of German carmakers Daimler AG and BMW AG rallied Monday morning after the U.S. trade deal with China. Trump’s comments, if ratified, would also hand automakers like Tesla a potential reprieve after higher levies hit sales in the world’s biggest car market.

China said last week that tariffs on U.S. autos would be 15 percent if not for the trade dispute, and it called for a negotiated solution. Chinese officials discussed the possibility of lowering tariffs on U.S. car imports before Xi met Trump in Argentina, according to Bloomberg, but the magnitude and timing of such a reduction were unclear, the person said.

In EMs, South Africa’s stock market was on course for its best day in four years, while Russian stocks climbed with the ruble as oil-production curbs spurred the biggest jump in Brent crude in two years. The peso advanced after a report that the new government was ready to re-purchase bonds issued to build Mexico’s City new airport

Meanwhile, in rates, ten-year Treasury yields rose back above 3 percent; the Australian curve bear steepens with 10-year yield three basis points firmer. Mexican peso rallies 1.3%, rand 1.1% stronger; won rose to its strongest since October.  Germany’s 10-year government bond, the benchmark for the euro area, was set for its biggest one-day yield jump in a month, rising four basis points to a high of 0.347%. Yields on riskier southern European bonds fell across the board, with Italian yields sliding as much as 10 bps to new two-month lows.

As noted above, WTI (+4.1%) and Brent (+3.9%) were both stronger following the positive US-China trade news and reports that Russia and Saudi Arabia are agreeing to extend the OPEC+ agreement; although no production cut figure has been announced so far. Additionally, Qatar, which produces approximately 600,000 BPD of oil, has announced that they are withdrawing from OPEC as of January with this being in-line with their long-term plan. Separately, Canada’s Alberta province is to reportedly mandate a 9% oil output reduction, which amounts to 325,000 BPD, in order to ease a supply glut with this to come into effect from January.

Gold (+0.7%) was firmer, albeit off of a 3-week high of USD 1232.30/oz reached earlier in the session; after gaining support from the dollar being weighed on by positive US-China trade news from the G20 summit. Steel and copper prices have also benefited from the positive trade news, with Chinese rebar steel increasing by its 7% exchange-set trading; with copper’s London benchmark prices nearing a two-month high. Elsewhere in commodities, Chicago soybeans rally as much as 3.2%. Base metals gain with LME copper up 2%; Dalian iron ore 3.4% stronger.

In other news, Italian PM Conte stated they are examining several options for a budget deal with the EU in which a solution could be made within days. Later it was reported, that Italian PM Conte is reportedly preparing for a deficit of 1.9%-2.0%, while Italian Deputy PMs Salvini and Di Maio are said to be ready to accept new target, according to Messaggero.  Italy’s Deputy PM Salvini says that the EU cannot ask for a 1.9% target.

In the latest Brexit developments, UK PM May was reportedly under renewed pressure as the DUP threatened to abandon support for her in a confidence vote if she failed to get her Brexit deal approved in Parliament. May’s chief Brexit adviser Oliver Robbins secretly warned her the PM that customs backstop is a “bad outcome” for the UK which will see regulatory checks in the Irish Sea and put security co-operation at risk, according to the Telegraph. UK Secretary of State for Environment, Food and Rural Affairs Gove, has told Conservative rebels that there was a “real risk” of a second Brexit referendum if they don’t back PM May’s deal with Brussels.

In geopolitical news, South Korean President Moon and US President Trump agreed to revive momentum regarding negotiations for North Korea denuclearization. In related news, South Korean President Moon said a visit by North Korean Leader Kim to Seoul is still open and possible this year, while US President Trump is said to be targeting a summit with North Korean leader early 2019.

Expected data include manufacturing PMI and construction spending. Finisar, Coupa Software, RH and Smartsheet are among companies reporting earnings.

Market Snapshot

• S&P 500 futures up 1.7% to 2,805.50
• STOXX Europe 600 up 1.8% to 363.80
• MXAP up 1.9% to 156.55
• MXAPJ up 2.3% to 502.97
• Nikkei up 1% to 22,574.76
• Topix up 1.3% to 1,689.05
• Hang Seng Index up 2.6% to 27,182.04
• Shanghai Composite up 2.6% to 2,654.80
• Sensex up 0.05% to 36,210.60
• Australia S&P/ASX 200 up 1.8% to 5,771.16
• Kospi up 1.7% to 2,131.93
• Brent futures up 5.3% to $61.79/bbl
• Gold spot up 0.8% to $1,230.66
• U.S. Dollar Index down 0.5% to 96.84
• German 10Y yield rose 1.1 bps to 0.324%
• Euro up 0.4% to $1.1362
• Italian 10Y yield rose 0.9 bps to 2.846%
• Spanish 10Y yield fell 1.1 bps to 1.491%

Top Overnight News

• U.S. President Donald Trump said China has agreed to “reduce and remove” tariffs on American cars from 40 percent currently. He gave no other details in the late-night tweet, which came shortly after he agreed with President Xi Jinping to halt the imposition of new tariffs for 90 days as the world’s two largest economies negotiate a lasting agreement. In a briefing in Beijing a few hours later, China’s foreign ministry spokesman Geng Shuang declined to comment on any car tariff changes
• Oil rebounded from the biggest monthly loss in a decade after Russia and Saudi Arabia agreed to extend their deal to manage the crude market into 2019 and Canada’s largest producing province ordered an unprecedented output cut
• Leaders of the world’s largest economies agreed the global system of rules that’s underpinned trade for decades is flawed, in a post-summit statement Saturday that the White House quickly claimed as a win for Donald Trump’s protectionist agenda
• U.K. Prime Minister Theresa May faces yet another grueling battle this week as members of Parliament sink their teeth into her Brexit deal ahead of a crucial vote. On Monday, politicians on all sides will ratchet up the pressure on May to justify the terms she’s agreed to with the European Union by demanding she publish the government’s internal legal advice underpinning the accord
• France’s “Yellow Vest” anti-government demonstrations intensified Saturday. More than 400 people were arrested and at least 133 injured after rioters in Paris burned cars, looted stores and restaurants, and sprayed graffiti on the Arc de Triomphe. Emmanuel Macron convened an emergency cabinet meeting amid demands to alter his environmental and budget policies
• As the Brexit deadline approaches, about 50 banks and other financial institutions are having or have had talks with the Dutch central bank about setting up shop in the Netherlands
• The compromise to safeguard the euro is set to underwhelm supporters of the sweeping vision of an integrated and assertive Europe set out by French President Emmanuel Macron last year as the banking union, bailout plans and euro budget are all bogged down

Asian equity markets were higher across the board with global risk appetite boosted following the US-China trade truce at the G20. News of the tariff ceasefire spurred a rally in US equity futures in which the Emini S&P and DJIA futures reclaimed the 2800 and 26000 levels respectively, with the blue-chip index up nearly 500 points. ASX 200 (+1.8%) and Nikkei 225 (+1.1%) advanced with Australia led by commodity-related sectors as energy benefitted from the positive trade developments and Russia-Saudi agreement to extend the OPEC+ accord, while the JPY-risk dynamic was very much in play for Tokyo trade. Elsewhere, Hang Seng (+2.4%) and Shanghai Comp. (+2.6%) outperformed on the easing of trade tensions, with sentiment also supported by better than expected Chinese Caixin Manufacturing PMI and after the CFFEX relaxed domestic stock index futures trading conditions. Finally, 10yr JGBs initially saw a bout of weakness at the open amid the heightened risk appetite, although prices later recovered amid the BoJ’s presence in the market for JPY 800bln of JGBs with maturities of up to 5yrs.

Top Asian News

• Trump’s Auto Tariff Tweet Boosts Stocks, Leaves Beijing Silent
• Goldman Sachs-Funded Group Bids A$2.4 Billion for GrainCorp
• Macau Casinos Rise as J.P. Morgan Calls November Beat Impressive
• Saudi Prince Finds Both Friends and Disapproval at G-20 Summit
• India Is Said to Seek Seizure of IL&FS Officials’ Properties

European equities (Eurostoxx 50 +1.8%) trade with firm gains as markets react to the fallout of the G20 summit which saw US President Trump and Chinese President Xi Jinping agree to delay hiking tariffs on USD 200bln of Chinese goods to 25% for 90 days  to allow for trade discussions between the two nations. In terms of sector specifics, mining names have been the main beneficiary  from the trade optimism thus far with price action in metals markets giving a lift to Antofagasta (+8.0%), Arcelormittal (+6.6%),  Anglo American (+6.3%), Glenore (+6.5%) and many more. Elsewhere, luxury names are also seeing some reprieve from the US-China developments with the sector previously hampered by tensions between the two nations; as such, Swatch (+6.1%), Kering (+5.5%), LVMH (+4.3%) and Burberry (+3.3%) all trade with firm gains. Auto names are also seen higher amid the spillover from US President Trump tweeting that China has agreed to reduce and remove tariffs on cars coming into China from the US which are currently at 40%; BMW (+6.1%), Daimler (+6.2%), Volkswagen (+3.9%). Finally, tech names have also been supported by the weekend’s developments with tech a key focus for negotiations, subsequently, STMicroelectronics (+7.3%), Infineon (+5.8%) and Wirecard (+4.4%) are also near the top of the Stoxx 600 leaderboard.

Top European News

• U.K. Manufacturing Growth Recovers From 27-Month Low in November
• Spanish Establishment Suffers Another Fracture in Andalusia
• Sewing’s Options Dwindle as Fresh Scandals Hit Deutsche Bank
• Albert Frere, Belgian Billionaire Investor, Dies at 92
• $80 Billion Locked in a ‘Golden Cage’ in Austria May Be Set Free

FX: DXY, CNY, JPY – An optimistic end to the G20 summit with Trump and Xi agreeing on a 90-day tariffs ceasefire until a trade deal can be negotiated (with sticking points such as IP remaining). As such DXY fell to lows of 96.710 vs. last week’s low of 96.622, though the index is nursing losses in an attempt to take another jab at 97.000. USD/CNY fell below the key 6.90 level despite a higher USD/CNY fix by the PBOC overnight, while JPY unwound some risk premium with USD/JPY stopping just shy of 114.00, but the headline pair supported just ahead of a downside tech-level (Tenken at 113.34).

• AUD, NZD, CAD – Major high-beta beneficiaries in the aftermath of the G20, with AUD/USD within striking distance of 0.7400 (where 1.365bln in option expiries lie) ahead of its 200DMA at 0.7418, while the Kiwi holds above 0.6900, marginally hampered by weaker than expected Q3 terms of trade and softer export volumes. Meanwhile, CAD also takes advantage of the rising oil prices after Russia and KSA extended their OPEC+ pact, on top of the tactical 325k BPD production cut at Canada’s Alberta refinery. USD/CAD currently sub-1.3200 but off post-G20 lows of 1.3160.
• GBP, EUR – Little reaction in the pound and the single currency following mixed manufacturing PMIs with Cable back down below 1.2750 (after having breached its 10DMA at 1.2800 where stops were reportedly tripped) and through the Raab-low at 1.2724 to test bids ahead of 1.2700, while EUR/USD couldn’t sustain gains to 1.1400 before retreating through 1.1350 and towards 1.1300. Note, the single currency was supported earlier on Italian press reports that PM Conte is said to be preparing for a deficit/GDP target in the range of 1.9%-2.0%, with the Deputy PMs apparently ready to accept the new target but has eased back in wake of the ECB’s announcement of Capital Key changes, including a perhaps surprisingly lower Italian ratio. In terms of option expiries, EUR/USD sees 1.32bln around 1.1380-90 ahead of reported offers at 1.1400.
• EM – TRY back in focus with softer than expected Turkish CPI helping the Lira retest recent highs around 5.1500 vs. the buck at one stage, but unable to breach resistance as the USD stage a broad comeback.

In commodities, WTI (+4.1%) and Brent (+3.9%) are both stronger following the positive US-China trade news and reports that Russia and Saudi Arabia are agreeing to extend the OPEC+ agreement; although no production cut figure has been announced so far. Additionally, Qatar, which produces approximately 600,000 BPD of oil, has announced that they are withdrawing from OPEC as of January with this being in-line with their long-term plan. Separately, Canada’s Alberta province is to reportedly mandate a 9% oil output reduction, which amounts to 325,000 BPD, in order to ease a supply glut with this to come into effect from January. Gold (+0.7%) is firmer, albeit off of a 3-week high of USD 1232.30/oz reached earlier in the session; after gaining support from the dollar being weighed on by positive US-China trade news from the G20 summit. Steel and copper prices have also benefited from the positive trade news, with Chinese rebar steel increasing by its 7% exchange-set trading; with copper’s London benchmark prices nearing a two-month high.

US Event Calendar

• 6:30am: Fed Vice Chairman Clarida Interviewed on Bloomberg TV & Radio
• 8am: Fed’s Quarles speaks at Council on Foreign Relations in NYC
• 9:15am: Williams Speaks at a NY Fed Conference on Treasury Market
• 9:45am: Markit US Manufacturing PMI, est. 55.4, prior 55.4
• 10am: Construction Spending MoM, est. 0.35%, prior 0.0%
• 10am: ISM Manufacturing, est. 57.5, prior 57.7
• 10:30am: Brainard Gives Keynote at NY Fed’s Treasury Market Conference
• 1pm: Fed’s Kaplan Speaks at Community Forum in Laredo, Texas
• Wards Total Vehicle Sales, est. 17.2m, prior 17.5m

via RSS https://ift.tt/2ALJrjT Tyler Durden