US factory orders surpass expectations in October TEST

Negotiations between Theresa May, the UK’s prime minister, and Jean-Claude Juncker, European Commission president, broke off yesterday without a deal over the UK’s exit from the European Union. Hopes had been high earlier in the day that PM May’s financial offer would be accepted by her European counterparts but a dispute in the Conservative Party and its DUP backers over the status of Northern Ireland appears to have stymied talks for now. Sterling whipsawed throughout the day, having gained steadily ahead of talks only to give up its gains by the end of trading to close unchanged. An EU summit on December 14-15 will be the next chance for the UK and EU to come together to finalise a Brexit plan but divisions in the UK will likely again threaten a successful outcome.

US factory orders came in better than expected for October, declining marginally (0.1%) compared with estimates of a 0.4% drop. When aircraft are stripped out of the orders, business spending rose 0.3% month/month, extending growth to four consecutive months and sending some positive messages about momentum over economic growth in the final quarter of the year. If the US Congress is able to pass its tax reform, corporate tax rates are set to be slashed to 20% which may help encourage greater investmenta.

Services PMI out of Asia showed a diverging picture for China and Japan. The Caixin services PMI for China hit a three-month high of 51.9 in November, helped by an improvement in new business and hiring, however it is still slower than performance earlier in the year. A slowdown in China’s economy had been expected in the final months of the year and the government has yet to announce its 2018 growth target. However, it is unlikely to accept sharply slower activity next year and the market is expecting growth to be around 6.5% in 2018. In Japan, the Markit/Nikkei service PMI measure fell m/m to 51.2 from a strong 53.4 in October despite good levels of new orders and improving business sentiment. 

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Source: Emirates NBD Research