Nov 15 (Reuters) - Markets have been likened to a drug addict looking for the next fix. Or maybe it's like being in a relationship with an alcoholic and always hoping for recovery (according to one analyst). Well, central bank stimulus has for years been that fix, but these days there is also the trade war, with markets swinging up or down on every headline as the Dec. 15 deadline for extra tariffs approaches. After U.S. President Donald Trump's disappointing speech on Tuesday, they've latched on to comments by his economics adviser, Larry Kudlow, that Beijing and Washington were nearing a deal. Oft-repeated words, maybe, but what the heck - risk is back on, bond yields and the yen are lower, stock markets and oil are higher. An index of world shares has risen 0.2%, though it's on track to snap a five-week winning streak, given the stream of weak economic data out of almost everywhere. The S&P 500 shrugged off dire earnings yesterday to reach a record high, Japanese shares rose 0.7% and Europe is opening higher.
But markets can only rise so much. The latest Chinese economic numbers yesterday showed that industrial production and retail sales were continuing to slow. The Chinese central bank unexpectedly added 200 billion yuan in liquidity injections in what’s seen as an attempt to ease conditions without cutting rates. Some reckon the move sets the stage for a cut in the new lending benchmark rate next week.
Then we have the events in Hong Kong and the fears of what might happen next. That pushed Hong Kong shares 4.6% lower this week, the biggest weekly loss since early August. Chinese shares were down, too, shrugging off the trade noise to head for the biggest weekly decline in three months.
Concern is growing that China may intervene in the increasingly violent protests, the ripples from which are starting to be felt far and wide. Hong Kong itself has confirmed its economy has plunged into recession for the first time in a decade. Money-market rates have rocketed 100 basis points this week, approaching highs touched in July when the protests took off. Of course, much of that is driven by the impending Alibaba IPO, which is expected to suck money out of the system, but watch this space if the protests escalate further and capital flight picks up. So far, there's no sign of flight, apparently.
As for knock-on effects, sales of Burberry provided an insight of what the impact could be on luxury markets. Sales to Hong Kong were down in the first half, and Ferragamo has said the turmoil has severely hit sales from July onward. More of this is likely, too.
Still, Federal Reserve Chairman Jerome Powell sounded upbeat yesterday about the U.S. economy and in no mood to cut interest rates further. European Central Bank Vice President Luis de Guindos said he considered a euro zone recession highly unlikely. Today we’ll get to see if that optimism is justified - headline euro zone inflation is expected to be confirmed at 0.7%, well below the ECB’s target rate of just under 2%, with core prices higher at 1.1%. We also get euro zone trade figures. U.S. retail sales figures may show if Powell’s cheerful comments hold water.
Yields in Germany and the United States were set to end the week 6 to 8 basis points lower, with Bund yields headed for their biggest weekly decline since late September.
In currencies, polls implying a majority for the Conservatives in Dec. 12 elections have taken sterling to a six- month high to the euro but no further moves from those levels. The dollar has risen from 10-day lows against the yen, but it’s still set for the biggest weekly drop against the yen since early October. The Chinese yuan is headed for the first weekly decline in six weeks.
European stock markets were opening higher and Germany’s DAX, a typical gauge of trade war fear, were up a quarter percent. Autos, a key sector to play the U.S.-China feud were up 0.3%. The pan-European STOXX 600 is only 11 points from its April 2015 record high of 415.18 points. It’s rising today but still off the four-year highs touched earlier in the week.
The big news in the UK market is BT’s 2% fall after Labour said it would nationalise parts of telecoms provider BT's network if it won power in the Dec. 12 election, to provide free full-fibre broadband for all. Labour is not expected to win the election, though.
Price action is expected in Scandinavia, where Nordic property firm SBB launched a $2.42 billion cash and shares bid for its rival Hemfosa. The price constitutes a premium of 22.7% to the closing price on Thursday, so all eyes will be on how investors arbitrage the price gap. Another share under the spotlight will be Europcar after Reuters reported its main shareholder, France’s Eurazeo, hired JP Morgan for a possible sale of its 29.8% stake.
Altice is expected to rise at the open after it said its sale of its Portuguese fibre network was progressing well.
Germany’s Delivery Hero said it would continue to look at every single acquisition and that Europe would break even for the full year.
Emerging-market stocks edged up 0.4%.
Turkey’s lira was 0.3% weaker after Washington proposed Ankara get rid of the Russian S-400 missile defences it purchased, while the latest Turkish data showed unemployment rose to 14%, but still below a 10-year peak. The Republican chairman of the U.S. Senate Foreign Relations Committee said he did not want lawmakers to pass legislation imposing sanctions on Turkey for now.
South Africa's rand is up 0.3%, its strongest level in a week. Workers at South African Airways began strikes on Friday over wages and job cuts that have forced the state-owned carrier to cancel all flights and left its future unclear.
Chile's peso slid to a low against the dollar on Thursday and is on course for its worst week since 2011 as the government warned as many as 300,000 jobs could be lost because of the impact of four weeks of rioting.
For its third meeting in a row, Mexico's central bank cut rates, lowering its key interest rate by 25 basis points to 7.50% and flagging that the economic growth outlook had probabl y worsened in recent months.
In Lebanon, three major Lebanese parties agreed to nominate Mohammad Safadi, a former finance minister, to become prime minister.
China Oct house prices SKorea Oct trade balance Japan Sept industrial output Hong Kong Q3 GDP Sri Lanka central bank policy decision Europe corp events: LEG Immobilien, Simcorp, AP Moeller-Maersk EZ, Italy Sept trade balance, Oct inflation Turkey Oct budget balance European Central Bank board member Mersch speaks in Paris; ECB supervisor Jochnick speaks in Frankfurt ECOFIN budget meeting in Brussels US Oct retail sales, industrial production, export/import prices Bank of Canada chief Poloz speaks in San Francisco Sovereign credit rating reviews – S&P Global reviews Netherlands, Iceland, Burkino Faso. Moody’s reviews Spain, Zambia, Republic of Congo, Isle of Man. Fitch reviews Ireland, Belarus; DBRS reviews Italy, Cyprus, Finland (Reporting by Sujata Rao)