Market movers today

Repercussions from trade-deal signing yesterday and hints on phase 2 could stay on the agenda today, but otherwise focus will be on the ECB minutes from December. The meeting did not reveal new policy signals, but the potential for governing council members viewing the economic outlook more positively is worth keeping an eye on. For the longer term, we will look for clues about the strategic review.

Then on to US retail sales for December: there have been indications that US Christmas sales disappointed, which will come on the back of subdued growth in November. Consumer confidence remains high and the housing market is still improving supported by the lower mortgage rates and decent real wage growth. 

Given the focus on US manufacturing, where ISM continued to disappoint despite an increase in the equivalent Markit PMI, look also for Philly Fed this afternoon.

Note also that the Turkish central bank is expected to cut rates at its meeting today. 


Selected market news

Risk sentiment stayed on a strong footing with equities, as US and China signed and published the phase-one trade deal yesterday  Equities stayed on a strong footing in the US, if more mixed in the Asian sessions. US Treasury yields edged lower with the 10Y yield now around the 1.79% level. Both USD/CNH and USD/JPY - the more reactive to trade news - were little changed, lingering around 6.89 and 110, respectively

The bulk of the deal was known in advance - notably that new tariffs will not come into play - but more details on China's buying of US goods were announced (although some of this had also been leaked in recent days). Also, a pledge not to engage in competitive devaluation was included in the deal alongside stricter rules on intellectual property rights. In terms of China buying US goods, we learned that US annual exports to China are set to rise by around USD200bn over 2020 and 2021. Of this, some 20% are set to come from agricultural goods, 40% from manufacturing, and the remainder from energy and services.

Needless to say, the deal is meant to secure the US president support from a crucial part of his voter base, while China gains from a clear de-escalation in the trade war weighing on activity. For Europe the deal is a mixed outcome: on the one hand, it could be a drag on EU exports to China now that the latter is forced to source more goods from the US. On the other, Europe will benefit from stricter rules on intellectual property. Focus now shifts to phase 2 where key obstacles, e.g. concerning technology and industrial policy, remain. 

Meanwhile a few stories on the political side also stole attention yesterday, even if the immediate market consequences are limited. In Russia, Prime Minister Medvedev resigned and President Putin announced wide-ranging constitutional reforms, seemingly to secure power when his term ends in 2024. In the US, the House sent Trump impeachment articles to the Senate for a trial to start next week, but we continue to stress that the likelihood of a legal ousting of the President remains small due to the party composition of the Congress. 


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