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Cue
"flash" PMIs due on Nov. 22 from Japan and the euro area;
numbers widely regarded as a forward-looking indicator of
economic health.
October PMIs pointed to some stabilization, raising expectations
that hefty central bank easing had helped the global economy to
bottom out.
On the flip side, Sino-U.S. trade uncertainty drags on, making
it harder to call a turnaround in the data. No wonder then, that
after weeks of heavy selling, government bond yields are heading
down again.
Yet European Central Bank Vice President Luis de Guindos said on
Thursday risks of a European recession were "very low". The PMIs
might bear that out -- or not.
2/ SPEND, SPEND, SPEND
Britain's election is less than a month away and with the two
main parties set to release their election manifestos, one thing
is for sure -- both plan to spend big.
The opposition Labour Party pledged on Friday to nationalize
BT's broadband network, proposing to fund that through extra
tech sector taxes. It has already suggested nationalizing water
and utility firms, an exercise that S&PGlobal estimates could
cost 160 billion pounds. The Conservatives, favorites to win,
are also wooing voters, with the biggest public service spending
increases in 15 years and plans to spend up to 3% of annual
output on infrastructure -- almost double historical averages.
Under any election outcome, state spending looks set to rise to
levels unseen since the 1970s, predicts think-tank Resolution
Foundation. And there's only one place the government can find
the money -- bond markets. UK public debt stands around 80% of
GDP; below U.S. and Japanese levels but higher spending plus the
Brexit hit to growth mean that ratio can only rise.
Government 10-year borrowing costs have almost doubled since
early-September and could move higher, especially if Britain's
rating is cut. Moody's recently cut the rating outlook, citing
among other things, rising public debt.
3/ RETAILERS: IT'S A WRAP
Walmart dodged the trade bullet on Thursday with an earnings
beat showing its growing market share in groceries helped
insulate it from tariffs on Chinese imports. Soon we'll learn
whether other retailers have been as well positioned to weather
the trade dispute.
Home Depot, Kohl's, Urban Outfitters, Target, Macy's and Gap are
among the chains reporting in what will be the end game for
third quarter earnings. Based on results from 458 S&P 500
companies that have reported, earnings are down 0.4% from Q3
2018, Refinitiv data shows.
The big stores, plus online behemoth Amazon, are a key indicator
of whether the U.S. consumer -- representing more than 70% of
the economy-- is still spending, even as manufacturing struggles
and job growth plateaus. It's particularly important heading
into the make-or-break, year-end shopping stretch.
Amazon's weak holiday quarter guidance last month fed worries
that the trade spat is hurting the U.S. retail industry.
Next Friday brings advance readings on November purchasing
manufacturing indexes (PMIs) as well as the final University of
Michigan consumer sentiment print. That should play into the
outlook from retailers.
4/ PAPER CUTS
China isn't in a great place right now. With the economy
slipping deeper in the trade war quagmire, the case for lowering
the new lending reference rate, the LPR, is getting stronger.
Industrial production growth has slowed below 5%, steel output
is at seven-month lows and third-quarter economic growth is at
its slowest in a generation. The central bank has fiddled
monetary settings to get things moving, trimming the medium-term
lending facility last week by 5 bps. The LPR was cut in August
and September; glacial progress toward a trade truce makes
another step down in interest rates likely.
Then there's Hong Kong, racked by increasingly violent
pro-democracy protests and in recession for the first time since
2009. E-commerce titan Alibaba's $13.4 billion IPO, due in
coming days, is seen as a vote of confidence. But demand for the
stock has started sucking out cash, raising short-term borrowing
costs. These have already shot toward decade-highs marked in
July and will rise further if capital starts fleeing. It's not a
situation China will be keen to deal with at this point.
5/ PAIN IN SPAIN
Spain looks set for a coalition government comprising the
Socialists and the far-left Unidas Podemos -- a prospect that
doesn't sit well with markets given Podemos has called a rise in
public spending, taxing banks more and rethinking privatization
plans for lender, Bankia.
Given all this coincides with an economic slowdown, it's no
surprise that Madrid stocks plunged when the coalition pact was
announced. The share index, the IBEX, has since fallen to the
lowest level relative to the pan-European STOXX benchmark since
the latter was created in 1998. The IBEX is up 7.6% so far this
year, while the STOXX has surged 20%.
After four Spanish elections in as many years, one would expect
investors to be inured to political uncertainty. Indeed bond
yields, while at four-month highs, have reacted less than
shares. But the equity selloff shows sentiment remains fragile.
The Socialists/Podemos accord is not a done deal yet. The
coalition would also rely on other parties for a parliament
majority, potentially tempering big policy swings to the left.
And investors also hope Nadia Calviño, the acting economy
minister and respected economist, stays in the new government.
(Reporting by Tom Westbrook in Singapore, Alden Bentley in New
York, Danilo Masoni in Milan; Dhara Ranasinghe and Sujata Rao in
London; Editing by Toby Chopra)
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