Risk sentiment up on possible ‘reasonable’ trade deal

Market movers today

  • It is a relatively quiet day on the data release front and hence market attention will be on political signals, notably from the trade talks between the US and China and the Brexit debate starting up in the UK.

  • In Japan, we will get November cash earnings overnight. After the summer's large bonus payments, cash earnings have lost momentum again and y/y real earnings have been hovering around zero. Cash earnings are key for the inflation outlook to brighten and Bank of Japan governor Haruhiko Kuroda has highlighted that they will follow wage developments closely in order to spot future tendencies in inflation. Falling oil prices should be supportive and push real wages back into a positive trend.

  • Danish December CPI inflation is due today. We expect inflation to decrease slightly from 0.8% to 0.7% in November. See more on page 2.

  • In Norway, November manufacturing production is due to be released today.


Selected market news

Trade talks between the US and China top officials continue today in Beijing. US and Asian equity indices are up 0.5-1.0% this morning after the Trump Administration indicated that a 'reasonable' deal could be reached. This followed an unexpected appearance by China's most senior economic official Liu He, President Xi Jinping's top economic advisor, among the Chinese delegation. The gains appeared despite another disappointing print of US economic indicators, with the ISM Non-Manufacturing Index down to 57.6 (expected 58.5). Risk sentiment is up somewhat in equity markets after the People's Bank of China's decision to lower reserve requirements and Fed Chair Powell's comments on Friday.

The short end of US yield curves is becoming less inverted with 5Y US treasury yields up another 2bp, thus erasing the large drop in yields seen at the beginning of the year. The longer trades are roughly unchanged.

British Prime Minister Theresa May's cabinet is due to meet this morning to discuss a proposal that could potentially limit the British Treasury's tax raising powers should the divorce with the EU end without a deal. It is as yet uncertain whether the proposal, which is an amendment to the Prime Minister's own budget legislation, will be selected for a parliamentary vote, but the fact that the cabinet is considering this proposal highlights the weakness of Theresa May's position within the government. Should the proposal turn into law, it would lower the risk of a no-deal Brexit, the latter being the preferred alternative for the Prime Minister herself should her Brexit deal not pass.

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