More records for US stocks; GBP dips on soft data

Summary:

• US500 hits new all-time high near 3200

• European equities continue to rally in spike of poo PMIs

• Pound dips after soft UK data

• Is strong Nov for China a sign of recovery?

• Macroeconomic update

The long awaited confirmation of a phase one trade deal between the US and China caused a bit of a mixed immediate reaction in the markets, with the failure to roll back more of the existing tariffs taking some of the shine off the agreement. Despite the volatility the US benchmarks still ended last week at record levels and there’s been further gains since with all the major indices hitting their highest ever opening level this afternoon. At the time of writing the US500 is up by 0.8% and trades above 3195 having chalked up a record peak in the last hour. 

The US flash manufacturing and services PMIs came in pretty much in line with forecasts at 52.5 and 52.2 respectively. 

A set of preliminary PMI indices from Europe was released this morning. Manufacturing gauges from France and Germany disappointed with the former coming in at 50.3 pts (expected 51.5 pts) and the latter at 43.4 pts (expected 44.5 pts). Services indices were either in line with estimates of slightly above. Preliminary manufacturing PMI for the whole euro zone came in at 45.9 pts, way below the forecasted 47.3 pts. In spite of the fact that this data casts a shadow on recovery in the European manufacturing sector, investors does not seem to be distracted with the poor data as major stock market indices from the region made just a small pullback after the release.

There was also more soft data from the UK with the last flash readings of the year for closely watched industry surveys pointing to further weakness in both the manufacturing and service sector - although this pessimistic outlook may be a little misleading. These data points are often keenly viewed but due to them not capturing last week’s election result they are of secondary importance this time out. It would not be at all surprising to see significant upwards revisions to these flash estimates later this month, with the markets and business in general reacting positively on the whole to the Coservative victory last week and the final readings should reflect this improvement in sentiment. The pound has fallen to its lowest level of the day against both the Euro and US dollar in response but remains firmly above the level seen before last week’s exit poll was released and it seems like traders will still likely view any weakness as a buying opportunity - at least in the short term. 

A set of economic releases for November from the Chinese economy brought some reasons to cheer as industrial output accelerated to 6.2% in annual terms, the most since June. The reading turned out to be well above expectations and a beat was also seen in retail sales which grew 8% compared to the same period last year. At the same time, fixed asset investment (excluding the rural sector) increased 5.2% in the first eleven months of the year, matching the October’s pace of growth. On the face of it, Chinese industrial production could be a bellwether of a potential recovery in the world’s second largest economy, and this is especially true when we take into account a trade deal struck with Washington last week (not signed yet).

Our latest Macroeconomic update focuses on this deal and can be viewed in full here.