China’s Industrial Profits disappointed this morning, falling 2.90% YoY following an equally disappointing 2.10% fall last month. Digging into the numbers, state-owned industrial firms profits slumped a mammoth 12.10% while private firms industrial profits rose 5.30% across the 41 sectors surveyed. The monthly figure for October on its own, is even uglier, a drop of 9.90%, an eight-month low.
It highlights that the U.S.-Sino trade war is a two-way street from which China itself is not immune. That is despite the euphoria surrounding Alibaba’s (HK:9988) successful secondary listing yesterday in Hong Kong, and China’s oversubscribed U.S. dollar bond sale. China’s industrial heartland has been hurting from the global slowdown as well. For example, the industrial profits data shows that in the oil processing and ferrous metals smelting sectors, industrial profits have fallen 51.0% and 44.0% respectively.
The Chinese probably have President Trump to thank today, with his trade comments overnight taking the edge of today’s China data. President Trump said that the interim trade deal negotiations were in the “final throes” of an agreement. The collective sigh of relief that he hadn’t said “death throes” is palpable today.
The positive trade sentiment has kept the global recovery fires burning overnight and this morning, with equities continuing their push higher except for Mainland China. Big box retailer Best Buy (NYSE:BBY), also released positive Q3 results, signalling the U.S. consumer remains confident. The results are more critical than first appears, with the U.S. consumer seemingly the last global spender still standing tall in the developed world. It is especially so as the Black Friday sales kick off this week, signalling a Le Mans like start to the critical holiday shopping season in North America.
Asia and Europe’s data calendars dry up today with this evening’s highlight sure to be U.S. Personal Spending, Durable Goods and GDP figures from the U.S. Consumer spending is expected to rise 0.30%, with Durable Goods Orders falling by 0.80% a slight improvement on last months 1.20% fall. U.S. GDP estimated is likely to ease from 2.0% to 1.9%, still falling yet at the same time, still respectable in the developed world. Of the three, consumer spending is likely to have the most impact, especially if it falls by more than expected ahead of the all-important holiday shopping season.
Activity in the financial markets will ease this evening, with Americans migrating home for the Thanksgiving holiday tomorrow. Friday will almost certainly remain quiet as well, as the country loots Black Friday specials from shops across the country. In all likelihood, this means that the trade-talk rhetoric will die down, with basting turkey the order of the day. Nevertheless, talks appear to be moving in the right direction, albeit agonizingly slowly, which should leave the global recovery trade intact for the remainder of the week. Let’s hope I don’t end up with giblets and cranberry sauce on my face.
Equities
Wall Street crawled still higher overnight, boosted by positive, great, forward-thinking and wise China trade comments from President Trump. The S&P 500 rose 0.22%, the NASDAQ rose 0.18%, and the Dow Jones rose 0.19%.
Best Buy released pleasing quarterly earnings and a positive last quarter outlook to give equities a lift. If all is well with the U.S. consumer, then perhaps it is not so much in the farming and industrial heartlands of the U.S. That question may be partially answered this evening as Deere & Company (NYSE:DE), of farming equipment fame, releases quarterly earnings.
Asia itself has taken President Trump’s “final throes” comment to heart, with Asian indices mostly higher except for Mainland China. The Nikkei 225 is 0.40% higher and the Hang Seng, post-Alibaba’s successful secondary listing yesterday, is 0.20% higher. South Korean consumer confidence moved higher this morning, perhaps suggesting the worst may be behind them, the KOSPI climbing 0.20% on the news.
Over in China, the Shanghai Composite fell initially on the weak industrial profits data but has shrugged that off to rise by 0.20%. The CSI 300 though is still lingering slightly in the red, down 0.25%.Overall the global recovery trade is alive and well with most stock markets remaining cautiously optimistic ex-U.S. where they are still “all in.” With the U.S. out this evening effectively for the rest of the week, that will likely be the theme continuing to drive markets.
Currencies
Major currencies continued to quietly range against the dollar, as is their lot of recent times. U.S. Treasury yields continued to edge lower, contributing to the Dollar Index falling slightly by 0.08% to 98.24.
GBP/USD retreated to 1.2860 from 1.2910 as a new opinion poll suggested the Conservative lead over Labour has shrunk. GBP/USD remains locked though, in a 1.2800/1.3000 range. A YouGov poll released tonight, and favoured amongst punters as being one of the more accurate, may shed a brighter light on proceedings. We can expect GBP to bounce around on poll releases with half of the election campaign still to run.
Regional currencies are almost unchanged today as currency markets wind down ahead of the U.S. Thanksgiving holiday.
Oil
Oil climbed overnight on positive trade rhetoric from the U.S. President. It offset yet another rise in API Crude Inventories to 3.55 million barrels overnight. Brent crude spot rose 0.91% to 464.15 a barrel, just below nearby resistance at $64.25. WTI spot rose 0.73% to $58.05 a barrel.
Official U.S. crude inventories are expected to fall by 419,000 barrels later today. The data gets released towards the end of the New York session. Another surprise climb could have an outsized negative impact of prices, with most participants at or on their way home for Thanksgiving by that time.
For Brent to challenge resistance at $65.50 a barrel and WTI to overcome resistance at $59.50 a barrel, the U.S.-Sino trade story probably needs to move from soundbites to hard facts.With the U.S. in holiday mode, prices in Asia are unchanged on both Brent and WTI today.
Gold
Gold rose slightly by 0.42% to $1461.00 an ounce overnight as the U.S. dollar eased slightly and Treasury yields edged lower. Overall though, gold remains in the doldrums, entirely at the mercy of movements in other markets.
Activity will continue dropping ahead of the U.S. holiday. Critical support remains at $1445.00 an ounce with formidable technical resistance remaining at $1480.00 an ounce. Gold is adrift, with neither sail nor a following breeze, between these levels.