Submitted by Michael Every of Rabobank

Having started yesterday’s Daily “There was more bad trade news for markets to focus on yesterday,” it was of course inevitable that today’s Daily would have to start “There was more good trade news for markets to focus on yesterday.” Such seems to be the bipolar cycle of reporting on this topic which is, apparently, more important to the imminent health of the global economy than anything and everything. As I have tried to make clear here many times before, the trade war is not the main reason why the global economy has been slowing, and will slow further into 2020. But moving on…

That’s after Bloomberg again reports the US and China are considering a roll-back of at least some of the existing US tariffs in place as part of a “phase one” trade deal. The long, rambling piece, which needs an editor more than the average Global Daily does, underlines that perhaps--perhaps!--the December US tariffs might not be imposed (which would not be a huge surprise), and the recent September tariffs might be removed, in exchange for…something. What that is exactly is still not clear, beyond the magic word “agri” (and the hidden magic word “election”). Some serious horse-trading is underway both within the White House and between Washington DC and Beijing.

Yet this may already have been eclipsed by the action of the US Senate, which in a unanimous vocal “Yes/No” vote Wednesday morning Asian time (6PM EDT in the US), passed a bill supporting the Hong Kong protestors and threatening the potential removal of Hong Kong’s separate legal status if its autonomy is undermined. Technically, the next step is for the House and Senate to iron out the small differences in the two versions of the legislation that they have both now passed, vote again, and then pass it on to the president. That is expected to happen within weeks. Trump would then have three options: ignore it – and it becomes law after 10 days of being received; sign it – and it becomes law immediately; veto it – and if Congress has a 2/3 majority, which it certainly seems to, it still becomes law. Notably, China has already stated it would take “strong countermeasures” in response to this bill, and it will now arrive on Trump’s desk just around the time that the “phase one” trade deal is supposed to be happening. If so, have the horses the US is trying to trade effectively already bolted?

In response, CNH this morning sits just over 7.03, so some slight movement away from Lucky Seven, but AUD is not yet showing any major response. PBOC fixing stayed close to 7 again today regardless, of course, at 7.0118. Elsewhere, the 10-year US Treasury yield is back down to 1.77% - yes, markets are choppy, but consider that we were at 1.95% a few days ago and there was chatter of when we broke through 2% again and if we were heading back into a real bond bear market as all was now well with the world. (The message here was, yes, there was positional horse-trading going on in markets, but that a bond-bear structural economic proposition was horse-…something.) Oil, for example, has slumped from USD58 to USD55 over the past month, and Japan’s exports were -9.2% y/y in October, marking the longest series of declines since 2016, and imports -14.8% - and that’s with the Rugby World Cup and the Olympics.

This morning also saw China react with a 5bp cut to its new “benchmark” Loan Prime Rate to 4.15% and the 5-year LPR likewise to 4.80%. More easing will be coming, of course, and lots more should the horses trample all over the phase one trade deal.

What else to report? Impeachment rumbles on in the US, and while one’s reading of events depends on one’s political leanings, an objective analysis shows very little damage being done to Trump so far – which might also play into the trade war, if yesterday’s bad news is to be believed.

Elsewhere, Iran’s internet is still down and hundreds may have been shot by the authorities to retain control. Global media response: tumbleweeds. After all, Iran is a potentially huge market we all need to be trying to tap given sluggish domestic demand; we don’t need more bad news pre-Xmas – we want to focus on nice things like smiling babies and trade deals that push Japan’s exports back up y/y; and, some might posit, wouldn’t it be inconvenient if tough US sanctions actually produce geopolitical results?

There is also huge pushback within Germany against Chancellor Merkel’s stubborn insistence on leaving the door ajar for Huawei to build its 5G network: both her own CDU and her government partners the SPD are largely united in not wanting this to happen and are trying hard to prevent the decision from being made. A small part of the larger global ‘pferdehandel’ underway.

Finally, the first televised UK election head-to-head debate between BoJo and Corbyn produced an outcome that saw one viewer respond sadly, “I wouldn’t buy a used car from either of them”. Indeed, the extremely rowdy TV audience, by UK standards, left the distinct impression the public see both men as being rear parts of a horse’s anatomy. The two disagreed on almost everything, including how to pronounce Epstein--Corbyn managing to sound either very ‘rootsy’, or uncomfortably anti-Semitic, given his unorthodox “EpSHtein” over the more usual confusion on whether it is “Epsteen”; even the royal family were in the firing line. However, there was common ground that UK austerity is over.

In terms of changing voters’ minds, Corbyn had an exceptionally easy ride considering how radical some of Labour’s manifesto policies are, being free to focus on BoJo’s untrustworthiness and the NHS. Corbyn’s only major weakness, besides being accused of anti-Semitism, was Brexit, where there was still no commitment as to which way he would campaign in his proposed second referendum: BoJo pointed out the EU would hardly agree to a new deal with Labour if they don’t know if the government would back it in a subsequent plebiscite. However, BoJo himself came across like Hugh Grant on a particularly stuttery day (for example, just after he arrested back in 1995).