5 to 11 November: International trade disputes may not disappear

Positive risk sentiment returned to financial markets after President Trump and the Republican Party lost control of the House of Representatives to the Democratic Party. The risk-on mood fed through into emerging markets. As pressure eased on strained assets, many bounced after a long period of struggle. This begs the question, to what extent is such optimism justified? Although the outcome of the midterm elections may restore legislative checks and balances in the US, it does not automatically imply that President Trump will stop imposing tariffs. Therefore, in our opinion, noise surrounding international trade will not fade, as Democrats have not previously opposed President Trump’s approach to foreign trade. We remain of the view that trade tensions induce additional volatility, but are just noise. These tensions are deterring investors’ attention from the structural shifts that are brought about by the Fed’s gradual balance sheet reduction.

This week is going to be relatively quiet in terms of economic data releases in developed markets. The October CPI inflation data will be released in the US and is unlikely to upset financial markets. The Eurozone will reveal the aggregate Q3 GDP statistics for the whole bloc and then publish the final read of inflation data for October. Additionally, both Japanese GDP data from Q3 and October’s trade statistics are scheduled for this week, the latter of which should shed some light on the impact of trade tensions.

Market players are set to focus on emerging markets, principally China. At the beginning of the week, China publishes some of the most relevant high-frequency indicators, such as retail sales, industrial production and fixed asset investments. Global market sentiment could improve if the Chinese data confirms that stimulus measures by the authorities have started to finally feed through into the domestic economy. Furthermore, India’s CPI inflation will be published, whilst the Philippine central bank decides on the policy rate. In Latin America, the Mexican central bank might lift the policy rate by 25bp to 8% and Colombia will release Q3 GDP growth. African markets are set to have a relatively calm week, apart from the Egyptian central bank’s monetary policy decision, the economic diary is rather empty.

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