*An opportune time to get short US-China trade?
*PMI the focal point of a light calendar week
*GBP price action sustains Conservative majority
Low risk of failure priced in for US-China trade
S&P 500 Futures sustain near all-time highs at 3,118 and with
VIX a touch above 12% having broken 3,100 on Friday off the back of positive US-China trade comments. White House Economic Adviser Larry Kudlow disseminated positive comments to the media noting trade talks were "down to the short strokes" and that both sides communicate "every single day right now", having even used "video conferences in recent times". We
expect markets US-China trade rhetoric to remain a leading driver of macro markets however flag that there could be some exhaustion at the top. With a fair stack of optimism also baked in to equities and
USDJPY at the moment, it could be an opportune time to enter
USDJPY shorts at current levels. Net positioning in USDJPY recently switched from long to short on a week's time frame.
PMI calendar focus
It's shaping up as a light calendar week with manufacturing and service PMIs the major focus for markets on the data front. Aussie, Japanese and European PMIs are scheduled on Friday while US PMIs come out early Saturday morning. US consumer data in monthly CPI and Retail Sales managed to outperform last week whereby US CPI beat expectations 0.4% vs 0.3%, and US Retail Sales printed 0.3% exceeding 0.1% consensus. We recognise that the narrative of the US consumer as of late has been one of resilience and "soft landing" in the face of a broad slowdown in growth and consumption, especially across Europe and Asia. And therefore, is likely to bode well for US prints and positive US data surprises moving forward in the near-term relative to other regions. Having said that though, markets appear to be positioned more net short in USD this week than in the prior week, while AUD, CAD and Emerging Market FX positioning remains strong.
Conservative majority looking more likely
GBPUSD made a move back above 1.29 late Friday after UK election headlines hit the wires once again. This time, the Brexit Party announced it would stand down from 43 non-Conservative seats. We
noted previously that developments out of the Brexit Party reduced the risk of a No Deal Brexit; markets appear to be treating this news in a similar fashion. Markets are pricing in a strong likelihood that Conservatives maintain majority at the upcoming December 12 election. Our expectation is for Sterling price action to remain most sensitive to election prospects. Should a Conservative majority sustain as the base case, we think this puts a medium-term bullish bias on
GBPUSD. Look to PM Johnson's debate with Labour leader Corbyn on Tuesday, Nov 19 for further signals.
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