The US-China trade talks yo-yo spins again

Outside the volatility surrounding the US-China trade talks the NYFed Q4 GDP Nowcast is plunging lower towards zero growth ending last Friday at 0.4% growth down from 2% in late September. This is sharp decline in expected economic activity and indicates that the Fed is behind the curve again and that Fed Funds futures are not correctly pricing in the need for more easing. Our view is that the Fed will be forced to ease further as economic activity will continue to slow down as the US-China conflicts creates increasing uncertainty for companies holding back on employment and investments.

Another warning shot this week has been South Korean equities down 3.1% for the week showing that positive narrative in Asia remains fragile to trade talks headlines and macro figures. Later today the US Conference Board Leading Indicators for October will be released, and expectations are for another decline m/m potentially taking the index in its first negative y/y print since 2009. Depending on the next couple of weeks’ trade headlines and macro the “Santa rally” could easily be derailed.

Twitter was the first social media company to remove the option for advertisers to run political ads on its platform. The decision added pressure on the two online advertising giants Google and Facebook. The Trump campaign was using social media in a very effective way during the 2016 election and has incentives to keep status quo. According to Bloomberg, Trump campaign officials have pressured Facebook to maintain its permissive political advertising rules. But yesterday Google announced that it will can candidates from targeting election ads based on people’s political affiliation although targeted messages can still be directed based on gender, age and geography. So not as prohibitive as Twitter, but still more constrained than Facebook. According to Facebook’s own numbers political advertising revenue is expected to be 0.5% if revenue in 2020, but that number excludes revenue from PAC (political action committee) ads. But the ball is now surely on Facebook and further constraints on political advertising is not good for the Trump campaign which heavily uses advertising on Facebook.