It looks like Xi is coming to farm country

It’s a quiet morning with markets riding on hopes of the initial trade deal becoming signed within weeks where it looks like it will include soybean purchases, currency parameters and the opening up of the Chinese financial industry with no implementation of the December 15th tariffs but we’ll still be left with the tariffs on $360b of goods. I’ve still seen no details on IP protection and assume that will part of the much more difficult phase two process that will likely spill over well into 2020. The Shanghai comp was up .6% while the H share index jumped by 1.8%. The yuan is higher to its best level vs the US dollar since mid August.

Following the good BLS payroll report and the more modest ADP measure, tomorrow’s ISM services index will give us more color on October as well as from Markit where their employment component  within its services PMI fell to a 10 year low. Reconciling all the indicators are not easy and always clear at once.

The Eurozone manufacturing PMI for October was revised to 45.9 from the initial print of 45.7 and up from 45.7 in September which was the lowest in 7 years. This level equates to a decline of more than 1% annualized in industrial production according to Markit. They cite Brexit and US trade policy as the main culprits. Hopefully after Boris Johnson wins next month and a Brexit soon follows, the first factor will go away and the trade tensions will calm after a trade deal, although tariffs will remain. How are Eurozone companies dealing? “The focus of manufacturers remains on cost cutting, reducing inventories and investment spending while also lowering payroll numbers at an increased rate.”

The October construction PMI in the UK rose to 44.2 but off a recessionary level of 43.3. The estimate was 44.1. “Civil engineering was the worst performing area of activity in October, with business activity dropping at the fastest pace in ten years…House building has also lost momentum this autumn amid a broader slowdown in market conditions…There are clear signs that construction firms are positioning for an extended soft patch for project starts, as highlighted by a further decline in purchasing volumes and another month of cuts to workforce numbers through the non-replacement of voluntary leavers.” As long as Brexit seems more likely after Boris Johnson wins, all the bad news out of the UK will be looked at as old news. I remain positive on the pound and UK domestic businesses that have gotten beaten up over the past 3 years.