Head of Equity Strategy
Summary: The trade talks between the US and China are a constant yo-yo going back and forth with conflicting statements from both sides. Trump is now expected to sign the Hong Kong bill that says that the US should revise Hong Kong's special status every year. Despite this definitely being cold water on the trade negotiations the Chinese chief trade negotiator said he is "cautiously optimistic". In today's equity update we also take a look at the rapidly declining growth in the US economy and Google's decision to constrain political advertising putting pressure on Facebook to make a similar move.
Risk-off accelerated yesterday as news broke that Trump is expected to sign the Hong Kong bill despite China threatening it would negatively impact the trade negotiations. S&P 500 futures nosedived 0.8% on the news but has since recovered half of the retreat. But the negative sentiment spilled over into Asia and Europe in today’s session with South Korean equities down 1.3%. The usual trade talks yo-yo started shortly after the sell-off with China’s chief trade negotiator saying he was “cautiously optimistic” but also confused about the US position on the trade deal. The next big risk event for equities is the December 15 when the US will decide whether to additional tariffs on Chinese goods.
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.
The market is trying to get back to the pre-Covid and pre-war times, but that model is broken. A new dawn is here and the financial world needs to adapt.
Steen Jakobsen,
Chief Investment Officer
A political switch in China towards less tough control of its people and companies may kick things back into gear.
Redmond Wong,
Market Strategist
While the economic situation in Europe may not be as bad as feared, there's still a plethora of things to fix.
Chris Dembik,
Head of Macroeconomic Research
As the world turns increasingly bipolar, equity markets face harsh times as they transition into the new reality.
Peter Garnry,
Head of Equity Strategy
New alliances and collaborations outside of China may lead to prosperous times in Asia.
Charu Chanana,
Market Strategist
For years, it was thought that the balanced portfolio was a thing of the past. But recent developments may have changed that.
Peter Siks,
Investment Coach
Following a dramatic and volatile 2022 with good returns, a lot of this year's commodity performance may be driven by Chinese politics.
Ole S. Hansen,
Head of Commodity Strategy
2023 could be a tough year for currencies but EUR and JPY may have some upside.
John J. Hardy,
Head of FX Strategy
The commodity-heavy Australian market may have a good start to 2023, as the Chinese focus on growth signals demand for Aussie resources.
Jessica Amir,
Market Strategist
From a near-perfect environment for speculative assets before 2022 to the opposite, crypto faces fundamental challenges.
Mads Eberhardt,
Cryptocurrency Analyst
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)
