Asia open: Recap of latest developments as risk-on tones emerge

• US/China trade and Brexit headlines were the markets main focus.
• Hong Kong and UK leader manifestos garner immediate market attention.

Closing markets:

US stocks were up – S&P 500 and DJIA up 0.2% and 0.4% respectively at the close. European shares also were higher – The DAX was up 0.2% and the FTSE 100 surged 1.2%. Bond yields were practically changed. US yields on the US 10-year note were steady around 1.77%. WTI lost 1.4% to $57.8/bbl and gold fell 0.4% to USD1461.9/oz.

16-month tariff war in driving seat

In a 16-month tariff war, markets are looking for a so-called 'Phase-One' trade deal between the US and China amidst forever conflicting updates via various media coverage. Casting minds back to mid-week headlines, China said it would strive to reach a 'phase one' trade deal with the US in an environment of heavy stocks and government bond yields rebounding from recent slides in a collective consolidation of trends as investors await concrete trade news. 

A focus started to shift from conflicting headlines to China’s invitation for face-to-face talks in China before Thanksgiving which left the US dollar in consolidation – Indeed, investors wait to see whether the US administration accepts the invitation before the December 15th U.S. tariff increase deadline.

On Friday, there was an air of relief and the US dollar was firmer, not only due to solid US data, but there was word that President Donald Trump said that a deal with China was 'potentially very close' which also boosted risk sentiment, on the whole, giving a boost to stock futures and risk-fx resulting in a down day for gold, ending -$2.20oz. However, Trump, as always, gives a two-sided case and glimpses of optimism were hindered by an air of caution – Trump insisted that any deal would have to be weighted in favour of the US after years of trade imbalances with China.

The DXY was ending Friday +0.31%, fuelled by not only firm Markit PMI data and improved Michigan Consumer Sentiment, but technical moves in the FX sphere helped the dollar to catch a bid as well. 

Meanwhile, an immediate threat for any such acceptance of China's invitation to meet face to face would potentially emanate from Washington's reluctance to turn a blind eye to what happens in Hong Kong – United States national security adviser Robert O'Brien warned that while a dal was possible, the growing worries that a Chinese crackdown on anti-government protests in Hong Kong could further complicate matters on the trade front between the two superpowers and such efforts by both parties to put an end to a prolonged trade war that has undercut global economic growth forecasts. On Friday, President Trump commented on the Hong Kong bill and said that an announcement will come very soon - This has the potential to set back any progress of a trade deal into 2020.

An immediate threat to risk sentiment

Today, district elections in Hong Kong will hopefully proceed without violence, otherwise, we can expect a potential risk-off start to the week for Trump on Friday also said he had told Chinese President Xi Jinping that crushing the Hong Kong protesters would have "a tremendous negative impact" on efforts to reach an accord. On a more positive note, however, there have been recent reports that 'China said it will raise penalties on violations of intellectual property rights in an attempt to address one of the sticking points in trade talks with the US,' according to a Bloomberg article published prior to the open today.

Brexit, manifesto and polls in focus (GBP positive)

The other main attraction in global financial markets has been with developments on the Brexit front. Now with just 19 days until the general election and only 69 days until the official Brexit deadline, Prime Minister Boris Johnson and Labour Party leader Jeremy Corbyn met last Wednesday (in Asia) for a much-anticipated televised debate on an ITV.

There was not much of uptake from the markets from a debate that seemed to have resulted in a stalemate, besides the Tory government clearly ahead in major polls but quite some margin – In the end, a snap YouGov poll suggested the debate was basically a tie, with 51 percent of voters calling Johnson the winner compared with 49 percent for Corbyn.

In general, Johnson stayed blinkered on his pledge to “get Brexit done” while attacking the opposition leader, Corbyn, for failing to make clear how he would campaign if there were another referendum. Corbyn took the opportunity, in the first time, there had been a one-on-one matchup between them, to attack Johnson over the state of the country’s public services, specifically over the possibility of privatisation of the NHS.  

Corbyn this week unveiled his party’s 2019 manifesto, but it had very little to do with Brexit and instead focussed on a general expansion of the role of the state in British public life., titled “It’s Time for Real Change,” pledging major increases in spending, social programs, and taxes. It also included ambitious plans to fight climate change. The main takeaway for markets is that the manifesto highlights in a pledge to get Brexit “sorted in six months” by ditching Johnson’s withdrawal agreement. Instead, Labour wants to negotiate a new one that includes a much closer future relationship with Europe, including a customs agreement. This would spell a new referendum, but, crucially, Corbyn is still too vague as to whether his party will campaign for Leave or Remain. A regular YouGov poll also reveals today that Labour's manifesto launch last week, when Mr Corbyn set out a series of eye-wateringly expensive spending plans, has failed to move the dial with the public.

Meanwhile, UK PM, Boris Johnson unveiled the Tory Party’s manifesto which focused on moving on from Brexit and austerity and to open a 'new chapter' for UK including £33.9bn for NHS and 50,000 more nurses - while freezing taxes for five years. A plus for GBP at the start of this week will come in a new analysis by Datapraxis of 270,000 voter interviews conducted by YouGov which has predicted the Conservatives will win 349 seats on December 12 - a brutal blow for Labour with Jeremy Corbyn's party set to lose 30 seats and potentially end up with just 213 MPs.

GBP has been trading between a swing high of 1.3012 printed on 21st October, (Tory party polled to win elections, get Brexit deal done), and 1.2768 printed on 8th November, ( due to the dovish twist seen in the BOE’s monetary policy announcement with two MPC members voted for a rate cut). At this juncture,where support is seen at the 23.6% retracement of its October rally, below the 21-day moving average confluence, the pair is en-route to the 200 4-hour moving average that guards the bottom of the channel, a level in the 1.2760s from which channel-traders would look for bulls to commit and expect a correction back to the upside. 

A glimpse at scheduled events for the week ahead

Looking ahead for the week, for the North Americas, there will be a major focus on Canadian Real GDP, US PCE, and Durable Goods. From Europe, Eurozone HICP and the UK Election Campaign, including the Post-Manifesto Polling.