Insight Multi-Asset update – week beginning 25 November, 2019


Market and economic review

With little data to focus on in the early part of last week, and following on from our recent updates, markets continued to be dominated by the ebb and flow of news on the trade war between the US and China. Towards the end of the week, preliminary PMIs were released, suggesting a picture of stabilisation in manufacturing at a low level, and continued decline in services. And lastly, we heard from both the Federal Reserve (Fed) and European Central Bank (ECB).

Against this backdrop, equities ended the week broadly flat and government bond yields fell slightly. Volatility in FX has been particularly low, with most currencies remaining relatively stable.

News on a ‘Phase One’ deal between the US and China continues to drive risk sentiment

As mentioned above, news on a ‘Phase One’ deal between the US and China continues to act as the conductor to the market’s melody. The most recent verse of which points to a more positive tone; however, it is still very much up in the air.

Towards the end of the week, news from the US reported that China’s chief negotiator, Vice Premier Liu He, had invited US negotiators for further talks. However, the mood music soured as the report moved on to say the US team were reluctant to make the trip to Beijing without receiving commitments from China on agricultural purchases, intellectual-property protection and forced technology transfers.

Seemingly singing from a different hymn sheet, news from the South China Morning Post was slightly more upbeat. They reported that someone close to the Trump administration suggested that even if the ‘Phase One’ deal was not signed by 15 December, then the tariffs due on that day would be postponed as the two parties are close to an agreement.

PMI data points to a stabilisation in manufacturing but weaker services

The main data focus last week was the release of the November PMIs. The eurozone composite PMI undershot expectations by 0.6, printing at 50.3. Within this, the manufacturing PMI was slightly higher than expected (46.6 vs 46.4), but the services PMI disappointed (51.5 vs an expected 52.4). Overall, there is evidence of the gap between manufacturing and services closing, but that appears to be driven by services being dragged down towards contractionary territory whilst manufacturing stabilises at a low level.

PMIs out of Japan were most positive, with both manufacturing and services beating expectations, resulting in a composite print of 49.9 vs a prior month of 49.1.

Outside of PMIs, we also saw the release of US housing data, which has been more constructive, with both housing starts and building permits increasing month on month, by 3.8% and 5.0%, respectively.

No surprises in the Fed meeting minutes, and a call for fiscal support from the ECB President Christine Lagarde

The Federal Open Market Committee (FOMC) minutes provided nothing by way of new substance. As expected, Fed officials continue to see risks tilted to the downside; however, it is their view that some of those risks have improved of late. Overall, the committee believes that interest rates are now at an “appropriate level” and are “well-calibrated” to support the Fed’s objectives. Interestingly, there was also a discussion on negative interest rates as a policy tool, which concluded with all participants agreeing on the unattractiveness of that as an option.

We also heard from Christine Lagarde, president of the ECB, in her first speech in the new role. The call was for a new policy mix for Europe, to enable the economy to thrive in an increasingly uncertain global situation. President Lagarde said that whilst monetary policy will continue to support the economy, it is key that there is higher spending on the fiscal front. Clearly this would be positive for European risk assets; however, we believe that the hurdle for meaningful fiscal support from Germany remains high.


In the week ahead, we will see the latest European inflation data. Having seen last month’s annualised print falling to 0.7%, the lowest since November 2016, this will no doubt be closely watched as a potential indication of future policy from the ECB. We will also see confidence indicators and unemployment numbers from Europe, whilst the highlight from the US is the second estimate of Q3 GDP. By way of second-tier data, regional PMIs in the US and the German IFO numbers will also be released.

Outside of data there is not too much else to concentrate on: the Fed releases their beige book, and we will hear from several ECB speakers.

By Adam Kibble, Investment Specialist

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