News & Analysis

Week Ahead – Flash PMIs

December 16, 2019

Week Ahead

Flash PMIs

Last week ended with some good news which set the stock market on a Santa rally. After much speculations, it was reported that both the US and China have agreed to Phase One pending formal signature of the agreement. In the United Kingdom, the election outcome clearly conveyed that the UK wants the Conservative Party to “get Brexit done”.

Geopolitics

Trade War

After more than two-and-a-half years of negotiations, it is reported that the Phase One agreement will finally be signed in January. China has agreed to make “structural reforms and other changes to its economic and trade regime in the areas of intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange” in exchange of the US rolling back tariffs. The US President also decided not to go ahead with the new round of tariffs over the weekend.

Even though the US Trade Representative Robert Lighthizer stated that the partial trade deal is “totally done”, he mentioned that the whole agreement will be dependent on who is making decisions in China.

As the year comes to an end, Phase One has eliminated some layers of uncertainties which are reassuring to a certain extent. However, there is a dearth of details on the agreement and investors are also well aware that the success of this agreement will rely on China’s compliance.

These risks are likely to weigh on risk appetite and put a lid on gains.

Brexit

“Get Brexit Done” was the slogan behind the UK election. The Conservative Party has reclaimed a majority in the Commons and experienced the largest win in three decades to get Brexit done.

The focus is now on the pathway for Brexit. Getting Brexit Done will start with the resubmission of the Withdrawal Agreement Bill to parliament for ratification before Christmas. The significant majority win will give him ample power to pass the bill.

The Pound has been on a rally since the announcement of the election as the polls have predominantly shown a Conservative win. We expect the Pound to hold on to gains through the end of the year if the bill is passed.

However, the uncertainty on when and how the UK will leave the EU remains. In the coming weeks, investors will look for more clarity on how the Prime Minister will negotiate and secure a trading and security relationship with the EU.

Central Banks

Major other central banks will hold their last meeting for 2019 this week. Attention will likely be on the Bank of England (BoE). While it is widely expected that the BoE will keep interest rate and policies unchanged, it will be interesting to see the tone and language of the policymakers following the outcome of the elections. Even though it will take some time for the effect of the election to trigger a rebound in the economic data, an upbeat outlook by the BoE over the short-term performance will further boost confidence.

Meaningful Economic Data

United States

Preliminary PMI figures will kick in on Monday amid a barrage of economic data releases.

Monday: Markit Manufacturing, Services and Composite PMI
Tuesday: Building Permits, Housing Starts, Industrial Production and Fed’s Speech
Wednesday: Fed’s Speech
Thursday: Philadelphia Fed Manufacturing Survey, Jobless Claims, and Existing-Home Sales
Friday: Core PCE, GDP, Michigan Consumer Sentiment Index, Personal Income and Spending.

The final read of the GDP figures will probably be the highlight as the preliminary figures have shown a surprise uptick to 2.1%.

Eurozone

The preliminary PMI figures will also stand out for the Eurozone area. Investors will be looking for signs that the slowdown has bottomed out. Investors will probably view the data in a new light as some layers of uncertainties from the US-China trade war and Brexit have been removed.

Similarly, in Germany, the IFO surveys will help to bring some further insights into the German economy. ZEW surveys came better-than-expected last week and we saw the economic sentiment turned positive for the first time in months which have helped to ease recession concerns.

Monday: Markit Manufacturing, Services and Composite PMI (EZ and Germany), Labour Cost (EZ)
Wednesday: Consumer Price Index and ECB’s speech (EZ), IFO surveys and PPI (Germany)
Friday: Gfk Consumer Confidence Survey (Germany)

Australia

“The easing of monetary policy this year is supporting employment and income growth in Australia and a return of inflation to the medium-term target range.”

Keeping in mind that the easing policy and that the fact that the RBA sees at least two more rate cuts before even considering the controversial quantitative easing, the employment report this Thursday will be the most important one on the economic front.

There will be other key events that will help traders to have further clues on how policies will flare out in 2020:

Monday: Manufacturing PMI
Tuesday: Home Loans, RBA Meeting Minutes and Investment Lending for Homes
Wednesday: Westpac Lending Index
Thursday: HIA New Home Sales, Full-time Employment, Employment Change and Unemployment Rate.

Tuesday, 17 December 2019 Indicative Index Dividends ^{Dividends are in Points}
ASX200	WS30	US500	US2000	NDX100	CAC40	STOXX50
0.204	0	0.022	0.051	0	0	0
ESP35	ITA40	FTSE100	DAX30	HK50	JP225	INDIA50
1.3	32.843	0	0	0	0	0

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