European markets are set to open just small positive despite the impressive rally we had on Friday in US, the reason being the weakness in Asia with all major Indexes closing negatively and partially offsetting the positive US close.
Hong Kong riots escalated during the week-end with several protestors severely beaten up by the army, along with some people wounded, limited train services, supermarket and public places closed to the public. Importantly, Honk Kong leader Carrie Lam banned the use of face masks to preserve public security. As previously stated, we think this situation is far away from a resolution and the worse has yet to come.
On Trade-War, it seems that Chinese authorities showed some resistance to a potential trade deal, narrowing the scope for a resolution to some issues, without even considering to discuss about commitments on reforming Chinese industrial policy or the government subsidies (the most important points). The probability for a trade deal is getting lower and lower. High-level U.S.-China trade negotiations begin Thursday, October 10.
Another weak release for Germany this morning, with August Factory orders down 0.6% vs 0.3% consensus MoM, and down 6.7% vs 6.4% consensus YoY, still confirming the very weak patch for the German Economy.
This morning, negotiations between Johnson and the EU continue with the Irish backstop still being the first hurdle to break. It seems things are not looking good here with the EU showing reluctancy to the latest proposals made by the British PM. So far, 24 days to Brexit with the UK set to exit the block on October 31 24:00.
On Friday we had the important US data of Payrolls for September, a disappointing jobs number coupled with a slowdown in wage growth suggests the fundamentals underpinning consumer spending may not be as strong as hoped. On the positive side, unemployment fell to 3.5%, the lowest since 1969.
Chart showing that payroll growth is losing momentum
We had Powell speaking about the US economy, overall neither hawkish nor dovish, as the US economy still seems to be in a good place. Interestingly, Fed Kansas President Esther George (FOMC member), recently dissented against rate cuts and restated her hawkish stance against any expansionary policy.
On Thursday, the National Federation of Independent Businesses reported that the proportion of small firms looking to hire new workers fell to 17%,the lowest since February.
With business surveys moving lower, the case for more policy stimulus is building up. Post payrolls data, we have seen a wave of buying coming from HF & Long Only funds, the market like the rhetoric of the Fed stepping in with further cuts and potential new QE. Another scope for disappointment?