(25 November 2019)DAILY MARKET BRIEF 2:Markets are quiet

Global equities were able to claw back last week's loses on Friday and open higher today. Short end US treasures bounced on upside surprise in manufacturing and consumer sentiment data. New flow has slowed leaving the markets will few drivers. Overall incoming data suggest that global manufacturing has hit bottom but trade tension keeps the “animal spirits” at sidelined. US-China trade talks seem to be positive (although information remains inconclusive) but the passage of the Hong Kong pro-democracy bill in the US could cause diplomatic issues. Trade tension, demonstrations in Hong Kong and UK election updates do not have much market impact at this point. In our view, the absence of negative information, monetary policy remains supportive of risk-taking. Last week’s minutes from the October FOMC meeting proved no revelations. The decisions to provide another 25bp insurance cut as uncertainty remained and only “tentative signs” that trade tension was thawing. FOMC retained a generally optimistic view of the economic outlook with inflation below 2% threshold and growth in line with the trend. Member did highlight concerns over employment growth but likely to have been lessened by October's employment reported which shows a meaningfully upward revision in the prior release. In our perspective, the committee is slightly dovish yet further policy adjustment would only occur if data caused a “material change” in the economic outlook. Our view remains that policymakers continued to presuppose the outcome of US-China talks and broader effects on the real economy. Given Trump's deftness at manipulating the new cycle and want for lower interest rates, trade uncertainty will not be reduced any time soon. Therefore the FOMC dovish shew will remain. Given the stated environment, we remain constructive on EM FX.

By Peter Rosenstreich