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The Early

06 Dec 2019 08:23

Markets: sterling unstoppable

With no significant news on the trade front (for once), European equities were unable to hold onto the initial mark-up and drifted steadily lower through the session. Most indices closed down, although France's CAC 40 held up thanks to some more M&A excitement in the luxury goods sector (Kering/Moncler). Consumer services +0.3% was the only Euro Stoxx sector to end higher.

The pound extended its rally, especially versus a broadly weaker US dollar, and that was again the main driver of UK market internals. The resources groups struggled again, with mining -2.7% dragged down by Glencore -9%. Oil & gas lost another -1.1%, beverages -0.8% and tobacco -0.7%. Retail +2.3% (thanks primarily to Dunelm +13%) led the way for our PHySiCS mid/small cap sectors.

Overnight. US indices were able to shrug off the impeachment process and ended marginally higher, led by materials +0.7%, technology +0.4% and communications +0.4%. Energy slipped by -0.3% as OPEC agreed an additional -0.5mbpd of output cuts; the deal has yet to be extended past March 2020. Crude was little changed in Asia, while sterling held onto yesterday's advance. Asian equity indices were mostly firmer and Europe should open solidly higher.

Early numbers. Dow +0.10%, S&P +0.15%, NASDAQ +0.05%, VIX 14.52; US 10-yr 1.81%; Nikkei +0.23%, Hang Seng +0.78%, Shanghai Comp +0.07%; £=$1.3155, £=€1.1846, Brent $63.23/bbl, Gold $1472.75, FTSE 100 indication +22 (at 6.30 UK).

Macro: staying put

The UK REC Report on Jobs for November illustrated how uncertainty continues to weigh on hiring decisions. Demand for staff grew at the slowest pace in more than a decade and candidate numbers fell sharply. The rate of pay increases for new starters is moderating.

The final estimate of Eurozone GDP for Q3 confirmed that growth was a modest +0.2% QoQ, an annual rate of +1.2% YoY. Eurozone retail sales fell by more than expected in October, a -0.6% MoM decline pulling the annual rate back to +1.6% YoY. Internet sales were especially weak -2.5% MoM, along with medical goods -0.9% and clothing & footwear -0.8% MoM.

The US monthly trade deficit narrowed to -$47.2bn in October, the smallest for 18 months. The gap with China narrowed by -1.1% to $31.3bn. Goods export volumes contracted by -0.6% MoM, with declines in shipments of consumer goods; goods imports also fell, by -2.1% MoM, reflecting softer household spending. The data suggest that net trade could contribute positively to Q4 GDP growth.

Today’s events. UK Nov Halifax HPI (8.30) -0.7% MoM, +1.0% YoY; US Nov non-farm payrolls (1.30) +180k, unemployment rate 3.6%, average hourly earnings +0.3% MoM, +3.0% YoY; US Dec Michigan consumer sentiment (3.0) 97.0.

The Early will return on Monday 16 December.

Ian Williams
Economics & Strategy
020 7418 8819

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