Capital Markets: "No Good Deed Goes Unpunished"

From Marc to Market:

Overview: The equity and bond rally in North America yesterday carried over into today's session. With some notable exceptions, like China, Taiwan, Australia, and Indonesia, most bourses in Asia Pacific and Europe traded higher. US shares are little changed in early Europe after the S&P 500 rose to new record highs. The US 10-year Treasury yields fell six basis points yesterday, and benchmark yields eased in Japan, China, and South Korea. HSBC cuts Hong Kong's prime rate for the first time in eleven years, and several Middle East countries (Saudi Arabia, Kuwait, UAE, Bahrain) cut also cut key rates today. In Europe, bond yields are mostly 3-4 bp lower. The US dollar has softened against most of the major currencies but the Canadian dollar. The South Korean won, and Chinese yuan lead the emerging market currencies higher today. The South African ran, Turkish lira, and Mexican peso nursing small losses. Gold and oil are firmer but within recent ranges.

Asia Pacific
China's official October PMI disappointed. The manufacturing PMI slipped to 49.3 from 49.8, and the non-manufacturing PMI fell to 52.8 from 53.7. This translated into a composite reading of 52.0, down from 53.1. Economists project a further slowing in the world's second-largest economy and see the pace falling below 6% next year. Separately, Hong Kong reported that Q3 GDP plunged 3.2% quarter-over-quarter, which is around five-times worse than economists forecast.

As protests that were initially sparked by a CLP30 (four-cent) increase in subways fares roiled Chile, next month's APEC meeting has been canceled. Of course, it can be held somewhere else. The Chilean government has reversed itself and boosted pensions and minimum wage. In terms of the US-China trade deal, it does not matter in the short-term. China is buying for US agriculture products and granting more exemptions from the tariffs it imposed. The test of how real these talks are is December 15 tariff that the US has threatened. Until this is off the table, the tariff truce has not been secured.

The Bank of Japan met market expectations. It did not change rates but adjusted its forward guidance and reduced growth forecasts. The BOJ shifted for date-linked guidance (spring 2020) to one tied to its confidence that there is momentum toward its inflation target. It shaved its core inflation forecast for FY21 to 1.5% from 1.6%.

Japan's Justice Minister Kawai resigned after a magazine article alleged his wife made an illegal campaign contribution. This is second such resignation in the past week stemming from reports in Shukan Bunshun. Economic Minister Sugawara resigned after his secretary improperly gave the equivalent of less than $250 to a constituent in mourning. Following yesterday's news of a surge in retail sales (ahead of the Oct 1 tax increase, Japan reported industrial output jumped 1.4% in September, more than three times what the median forecast in the Bloomberg survey forecast. It entirely offset the 1.2% decline in August, and the year-over-year rate jumped to 1.1% from -4.3%.

South Korea's industrial output jumped 2% in September, and this was four times stronger than the median forecast in the Bloomberg survey.....

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