• US President Trump and Chinese President Xi Jinping announced a truce at the G20 in which the US agreed to delay hiking tariffs on USD 200bln of Chinese goods to 25% for 90 days
• Russia President Putin spoke with Saudi Arabia’s Crown Prince in which they agreed to extend the OPEC+ agreement, although haven’t decided on the precise volume of production cuts
• Looking ahead, highlights include US Markit Manufacturing PMIs, Fed’s Quarles, Williams, Brainard, Kaplan, BoE’s Haldane Speaking

TRADE

US President Trump and Chinese President Xi Jinping announced a truce at the G20 in which the US agreed to delay hiking tariffs on USD 200bln of Chinese goods to 25% for 90 days to allow for discussions, while China agreed to buy a "very substantial" amount of agricultural, industrial and energy products from the US. Furthermore, there were reports that the G20 draft statement agreed that the current global trading system has flaws and is in need of reform. (Newswires/BBC)

US President Trump tweeted that China has agreed to reduce and remove tariffs on cars coming into China from the US which are currently at 40%. (Twitter)

Goldman Sachs said the actual amount of concrete progress at the Trump-Xi meeting seems quite limited as expected, while it added that there is just over 50% probability that discussions will fail and that the tariff increase to 25% will still happen in March or later. (Newswires)

 

ASIA

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.

PBoC skipped open market operations. (Newswires)
PBoC set CNY mid-point at 6.9431 (Prev. 6.9357)

Chinese Caixin Manufacturing PMI (Nov) 50.2 vs. Exp. 50.1 (Prev. 50.1). (Newswires)

China Financial Futures Exchange CFFEX relaxed restrictions on domestic stock index futures trading with reports noting that some margin requirements and commissions are to be lowered. (Xinhua)

China's foreign ministry says US and China's Presidents have instructed their economic teams to work towards removing all tariffs. (Newswires)

Chinese Premier Li says the downward pressure on the economy is increasing. (Newswires)

 

UK/EU

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. (Times)

UK PM 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. (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. (Times)

UK Shadow Brexit Secretary Starmer said that Labour would almost certainly seek a vote of no confidence if UK PM May loses the key Commons vote on her Brexit deal on December 11th. (The Guardian)

UK trade body EEF raised 2018 manufacturing production growth forecast to 1.1% from 0.9% but cut 2019 forecast to 0.3% from 0.5%. (Newswires)

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. (Newswires) 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 (Messaggero/Newswires)

European Commission Vice President Dombrovskis says substantial corrections are needed in the Italian budget. (Newswires)

German Markit/BME Manufacturing PMI Final (Nov) 51.8 vs. Exp. 51.6 (Prev. 51.6)

French Markit Manufacturing PMI Final (Nov) 50.8 vs. Exp. 50.7 (Prev. 50.7)

Italian Markit/ADACI Manufacturing PMI (Nov) 48.6 vs. Exp. 48.9 (Prev. 49.2)

UK Markit/CIPS Manufacturing PMI (Nov) 53.1 vs. Exp. 51.8 (Prev. 51.1)

EU Markit Manufacturing PMI Final (Nov) 51.8 vs. Exp. 51.5 (Prev. 51.5)

 

ECB

ECB are to adopt a new capital key on January 1st, 2019.

- Bank of Italy's Capital Key to 11.8023% (vs. Prev. 12.3108%

- Bundesbank 18.3670% (vs. Prev. 17.9973%)

- Five-yearly adjustment based on population and GDP data from European Commission

- 16 national central banks to have higher share, 12 lower share

- No change in system of rotating voting rights

Link: https://www.ecb.europa.eu/press/pr/date/2018/html/ecb.pr181203.en.html

 

GEOPOLITICAL

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. (Newswires/Nikkei)

 

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.

SEK, NOK – An improvement in the manufacturing PMI has provided the Swedish Crown with some extra fuel to break through 10.2500 vs. the EUR. Nordea notes that all sub-indices rose (ex-employment) while also adding that the release is in line with NIER’s improved sentiment. Meanwhile, NOK also deriving gains from the oil complex with EUR/NOK giving up the 9.7000 handle to sit just above 9.6800. However, NOK gains are capped by pre-positioning for the next Norges Bank F-loan payment on December 6th.

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.

 

FIXED INCOME

Core EU bonds are still in negative territory as the US-China trade truce has resulted in the unwinding of pre-G20 premiums in the fixed income scope. Gilts derived little inspiration from a marked beat on the UK manufacturing PMI and languish around 122.50 vs. 122.69 at best, with a contract high of 123.22 eyed should any upside be struck by BoE’s Haldane later in the day. Bunds and BTPs also ignored the EZ readings, with the latter instead paying heed to a possible 2.0% debt/GDP ratio and hanging around highs of 125.24 (+55 ticks) with a fib level of 125.34 still being targeted to the upside. Bunds also remain around session highs at 161.40 (-21 ticks) with the German 10 year keeping aforementioned resistance at 161.41-44 prior to a psychological level of 161.50 ahead of Friday’s close of 161.54 and peak of 161.58 in mind.

US 10 year yields have maintained gains above 3.0% mark, albeit only by a few bp, with the benchmark future trading with losses of 6 ticks ahead of an action packed week, which kicks off with the dovish Clarida in today's session ahead of multiple speeches from Fed Chair Powell and supply from the US.

 

EQUITIES

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.

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.

Russia President Putin spoke with Saudi Arabia’s Crown Prince in which they agreed to extend the OPEC+ agreement, although haven’t decided on the precise volume of production cuts. (Newswires)

Canada's Alberta mandates 325k bpd or 9% output reduction in oil to ease supply glut effective January. (Newswires)
OPEC Economic Panel recommended an output cut from October levels according to reports on Friday, while it was also noted that a 1.3mln bpd cut seen as efficient to balance the market. (WSJ)