Markets have continued to rise on some further positive news on Trade-War with the Pro-Cyclical trade back in power.

The most recent US-China trade news flow is surprising to the upside, which is a strong a tailwind to the markets. According to Chinese sources, both countries have agreed to remove existing tariffs in different phases as progress is made on the agreement. US said that the first China trade deal would include tariff rollback. In addition, China is also planning to remove restrictions on US poultry imports. It seems that the market starts pricing the scenario where the Trump Administration is not going to implement 15% tariffs on $150Bln of Chinese goods initially scheduled for December 15.

It seems that the next meeting will be in London on the 2nd/3rd of December, just few days ahead of 15th of December date for new tariffs on consumer goods come in place. The most impressive movements were on rates, where it seems that the reflation theme is picking up steam, with US 10 Treasury yield breaking 1.94%, the highest level in 14 weeks, US 30 Treasury yield jumping to 2.4%, a decent move around 9bps breaking resistance, with all US curves 2-10-year and 2-30-year steepening 2/3 bps. On the other side of the ocean, the German bund yield rose 10bps to -23bps, the highest in more than 16 weeks on the biggest rise in four weeks (it was -70bps in August), along with the Italian yield increasing double digits, 16bps to 1.16%.

Following interest rates momentum, in Europe, Value Cyclicals outperformed, Banks +2.4% (Unicredit, +6%, best performer due to strong print), Auto +1.7% (short covering), Basic Resources +70bps (Arcellor Mittal, +6%, best performer due to strong print), Oil +50% supported by oil WTI rallying 2% (it makes sense a) no tariffs push global demand, oil demand b) reversed Wednesday sharp losses). As usual during this pro-cyclical rotation, Momentum underperformed, with the worst sector Utilities -2%. In a pure risk-on movement, also Gold underperformed over the day down 1.7%, approaching 1450 level (again it makes sense, US 10-year real rate +7bps yesterday inversely correlated to gold! US 10 year now at 20bps vs -10bps in August).

Interesting to note that the US 10Y yield has bounced from 1.5% in the middle of October to an high of 1.97% yesterday, just shy of the important 2% psychological resistance. The chart below is showing that while it seems that we have managed to break-out the downward channel we had since the end of last year, it has reached the 1st resistance given by the 23.6% Fibonacci retracement.The market might take a short-term pause now.

It was not all shining though, as the European Commission cut its Euro-area growth and inflation forecast for the next years, signaling that the worst may be ahead. According to official data, the Euro zone should grow to 1.1% this year from 1.2% expected in July, and to 1.2% in 2020 and 2021 from 1.4% while inflation will be far below the 2% ECB target level, 1.2% this year and next, rising to 1.3% in 2021. To underline, the worst revisions are mainly hitting Germany and Italy.

Euro-Area downgrades

EU Comm July forecast (orange) vs November (white)

Voters in Spain are heading to the polls on Sunday for the country’s second general election since April and its fourth in four years. Acting Prime Minister Pedro Sánchez, whose Socialists gained the most seats in the previous ballot, announced the vote in September after failing to secure enough parliamentary support to form a government. After months of fractious negotiations and political turmoil, Spaniards are hoping to break the political gridlock. Spain hasn’t had a fully functioning government for a while, and there’s no guarantee the deadlock will be broken after Sunday’s elections.

The most recent polls are suggesting a fragmented Parliament is the most likely outcome with no party polling as likely to win enough votes to form a government on its own.

Bank of England policy makers voted 7-2 to keep borrowing costs on hold this month. The majority continued to guide to a hike, conditional on an orderly Brexit and better global growth.The two dissenters, Michael Saunders and Jonathan Haske, highlight a risk of easing as they wanted to lower the benchmark by 25bps, the first votes for looser policy since 2016, triggering some risk-off selling pressure on the sterling.

Stock Specific Q3 numbers:


Disney, beat on several metrics, +6% post market, with Q4 earnings +12% vs consensus mainly driven by strong results in the Studio and DTCI divisions along with ESPN Plus and Hulu subscribers continuing to grow, with additional opportunity for accelerated adoption ahead from content investments and the upcoming bundling with Disney Plus. Walt Disney reached an agreement to put its new streaming service on Amazon, Samsung and LG devices to reach tens of millions of subscribers. Performance YTD +22%.


Richemont, indicated -5%, big miss mainly due to turmoil in Hong Kong (the drop in Hong Kong revenue exceeded 10%) and difficult environment in China and Asia. Q3 EBIT margin 15.7% vs consensus 16.7%.

Activision Blizzard, beat earnings consensus but shares slipped lower in post market due to softer current quarter revenue guidance, sees $2.65Bln vs previous $2.75Bln. Down 3% post-market, Performance YTD +17%.

Travellers like Expedia -28%, Tripadvisor -23%, and Booking -8% yesterday, record tumble, profit warning following weak earnings release due to slowing momentum in the travels giant’s fastest-growing category and increasing threats from Google changes.