EU MORNING: Milestones

  • Sedate price action after Phase One signing 
  • US Retail Sales could excite subdued FX
  • UK CPI adds to BoE woes as MPC decision nears
  • Antipodeans in party time
  • Netflix Q4 earnings up ahead 

Signed, sealed and... check back in nine months time to see what's actually been delivered

Hallelujah. We got there. US-China Phase One has been ceremoniously signed in Washington DC with Chinese VP Liu He and Trump fronting the media as a collegial, collaborative and committed pair. It's only taken 94 days since they supposedly "reached" the deal when He and a group of Chinese delegates left the US in October. But nevertheless, it's done and markets are onto bigger and better things. 

Oh wait. There's still the age old question of whether it'll be enforced. Questionable. But markets are likely to see past those risks associated with high long-term trade policy uncertainty as the bull run continues to edge higher unabated. Though, you can see that there is some tentativeness to roll higher, after all, most of it was already priced in. 

Remarks by Liu He stating China will buy an extra US$200bn worth of goods, based on "market conditions", only reinforces scepticism that's existed in pockets of the market since the beginning of false promises and numerous breaches over the past two years. The fact that China can exit the Phase One agreement quite easily should a US complaint "be taken in bad faith" is even more concerning.

Even though Phase Two talks look to start "very, very shortly", markets could be in for a bumpy ride if calls for non-compliance begin to get even louder. But in the meantime, underwhelming risk sentiment has equities broadly higher. FTSE eyes off a flattish start as suggested by futures. DAX isn't too far off either primed for a +15pt gain. S&P inches ever so close to 3,300. 

US Retail Sales the one to watch tonight

Weaker US PPIs overnight came and went to little effect in FX markets, which is characteristic really of how low historical and forward volatility is at the present time. And just because volatility is low, doesn't necessarily mean its cheap and that by some law of nature, should revert to "normal" ranges. 

With US Retail Sales out tonight (1.30pm GMT), maybe that can spark a bit of life into FX. After all, it's an important data point that offers more clues into the resilience of the US Consumer - a key theme that is set to direct investment portfolio flows throughout 2020. This is a data point that helps firm the choice between the attraction of carry and safety in the US, and low levels of growth elsewhere. 

The fact that behemoth retailers, the likes of Macy's and Target, failed to meet holiday targets, could see December retail sales underperform. It's not exactly a perfect science, but it is suggestive.

BoE January cut favoured 

There wasn't much to cheer in BoE space as UK Dec. CPI missed expectations (1.5% vs 1.3% exp.). Not exactly the decider, market pricing still reacted edging closer towards a full 25bps rate cut. From the STIRs curve, we can see that markets are now implying a 63% likelihood that MPC cuts on Jan. 30, having risen dramatically over the past fortnight.

Furthermore, while emphasis is put on UK PMIs next Friday, it's worthwhile having a look a the release of the BoE's Credit Conditions survey (9.30am GMT) for a feel of how credit is flowing through the UK economy. Though Sterling currently sustains above its 55d-MA, pricing in of a full rate-cut could see GBPUSD dive into 200d-MA in the near-term. 

Good times down under (and across the Tasman)

Despite the devastation of bushfires rocking the nation, the Aussie stock market ASX seems to be largely unfazed and in party mode, having broken through the psychological resistance point of 7,000 for the first time in its history.

Stocks that have been weighed on by the negative impacts of the bushfires are far and few between, and even then, still register positive returns. The RBA, likely to deliver two rate cuts in 2020, seems to be driving participants mindlessly towards a "buy now, ask questions later" approach. With plenty of domestic challenges unresolved, it's going to be hard to reconcile these levels once the sugar hit of slashing rates wear off. 

Elsewhere, a neighbourly NZDUSD looked upbeat, outperforming all G10 pairs after homes prices in some major cities rose to multi-year highs. A hot housing market stoked by low supply and strong population growth puts pressure on RBNZ to keep rates as is, come its next meeting in early February.  


Netflix (NFLX), the 140bn market cap digital streaming and production company, is due to report Q4 earnings prior to US open. There are a few key lines to look out for, one being none other than subscriber growth, a major focus for the behemoth FANG stock. Consensus expectations suggest 7.6m subscribers will be added in Q4 2019, though it could be trickier to estimate than it seems given the introduction of Disney+ late last year, and with it, the impacts of consumer switching.