The sentiment has been mostly positive in financial markets in the last two months. In September, sentiment improved after US and China softened their rhetoric and in October, comments about the partial trade deal helped improve the sentiment further, hence the decline in safe havens, such as in Gold during the last two months. But, the US ISM manufacturing report dented the sentiment yesterday. US manufacturing has fallen into contraction for several months, but expectations were for an improvement during November. Although, yesterday’s report showed further deterioration.

It sent the USD diving lower, but later on it turned into a risk off move in financial markets. Then, we had Donald Trump threatening with more tariffs early today, which escalated the situation. Traders got to realize from his comments that he is taking it easy regarding the trade deal with China and Chinese officials don’t like that. Besides that, Donald Trump threatened France with tariffs on “French wine and everything else”. That hurt the sentiment further, implying that this will increase trade tensions between US and the EU next year. Although, it’s a bit early now, so let’s see how things evolve.

The European Session

• UK Construction PMI – UK construction sector has been in recession since February this year, remaining around 43-44 points. Today’s report was expected to show a small improvement to 44.5 points from 44.2 in October, but it beat expectations, coming at 45.3 points.
• ECB Members Getting Vocal Against Negative Rates – The European Central Bank has been keeping negative interest rates for a long time. They decided to cut deposit rates further by 10 basis points, to -0.50% in September, which was the last thing Mario Draghi did as the president of the ECB, apart from starting another quantitative easing (bond purchase) programme. But, ECB members are starting to oppose them, as we are hearing increasing comments from them about the negative effects of negative rates.

• ECB governing council member, Pablo Hernandez de Cos:

  • September stimulus package is to support reaching inflation objective
  • But maintaining low interest rates for longer could hurt banking transmission channels of our monetary policy
  • Prolonged period of low interest rates could threaten financial stability

  • ECB’s Visco:

    • Negative interest rates have little effect
    • Negative rates can have negative side effects on the financial system
    • Prefer bond purchases over negative rates
• Donald Trump Commenting on Trade and Tariffs – US President Donald Trump is on a visit to the UK and he made some comments which brought back anxiety in the markets. Trump commented on France, saying that we’re taxing their wines and everything else. EU treats the US very unfairly on trade, EU has to shape up or things will get very tough. If I want to make a deal with China, we would do very well. China trade deal is dependent on whether or not I want to make it. He has ‘no deadline’ on China deal timing. Probably better to wait until after the Nov 2020 election for the China deal. He added that if you handed the NHS to us on a silver platter, we would not want it, responding to rumours from UK opposition that Trump wants to take the NHS (National Health Services) in the UK.

The US Session

• China Global Times Feels Pessimistic on Phase One Deal – China Global Times is supposed to be an international voice for the Chinese government. They posted a tweet earlier after Donald Trump’s comments on trade with China:
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• Positive Afternoon Comments from EU – An “EU delegation” to US came out with a headline saying the EU will seek immediate talks with United States on how to solve dispute over French digital service tax. Meanwhile French President Macron says:
  • Economic and trade issues with the US will undoubtedly find an outcome
  • Macron tells Trump to get serious in tense exchange on ISIS
  • Digital companies, whatever their nationality, compete unfairly with real businesses
  • France’s digital tax doesn’t target United States specifically
  • We think we can resolve digital tax situation with United States
• Trump Dials Down Tones – US President Trump was speaking with reporters at NATO just now:
  • We have a good relationship with France
  • We will talk about trade
  • We will probably be able to work it out on trade
  • We can easily get it worked out
  • We’ve had minor disputes but believe we will work it out
  • We intend to make a lot of progress with Macron
  • On NATO, says a lot of countries have stepped up at my behest
  • He discussed NATO flexibility with Macron
  • NATO is becoming bigger and stronger
  • Those countries that don’t deal with NATO obligations will be dealt with, may be through trade
  • We don’t want NATO members to be delinquent
  • Trump says on Macron, we will be able to work something out on trade
  • We have discussed French digital tax, and we may work it out
  • It may not come to that substantial tax but it might
  • We will either work it out or have a substantial tax
  • EU used to make 100-150B per year in deficits from United States so we need to do something fair
  • EU is very strong on barriers, meaning certain of our products can’t come in
  • Digital tax is the least of the problems

Trades in Sight

Bearish EUR/GBP

• The trend has ben bearish for a long time
• The pullback higher is complete
• The 100 SMA provided resistance again

The 100 SMA is doing a great job as resistance

EUR/GBP has been bearish since the middle of August, losing more than 8 cents on the way down. We saw a retrace higher in October after Boris Johnson’s Brexit deal failed to pass the UK parliament, but the downtrend resumed again and sellers pushed further below. We have seen this pair retrace higher several times during this time, but since early November, the 100 SMA has done a great job as resistance. We saw a retrace higher again yesterday, but the 100 SMA stopped the climb and EUR/GBP reversed down again.

In Conclusion

The sentiment turned pretty negative earlier today after Trump’s comments on China deal and on tariffs on France, which might turn into a new trade war front in 2020. They dialed down the tones later in the US session, but that hasn’t improved the sentiment. So, it’s going to be a mixed market in the US session, I suppose.