The economic indicators remains mixed, with the official manufacturing PMI dropping to 49.3, staying below the 50 level for 5 consecutive months, while the Caixin manufacturing PMI continued to improve. Industrial production remained resilient, but industrial profits continued to fall. The October PPI stayed negative, falling for 4 consecutive months, dealing further blows to the exporting sectors. The weakening profitability of the manufacturing industry continues to post a threat to the sector moving forward even though the trade conflict are showing signs of resolution.

As for China’s GDP growth, it continues to slowdown in Q3, continuing the trend since 2017 Q2, so there is speculation that there would be more policies in the near future to further boost the local economy. The PBOC announced a new round of Medium-term Loan Facilities (MLF) amounting to 400 billion CNY, matching the recently ended round of MLF in nominal amount, but lowered the interest rate for the first time in 3 years from 3.3% to 3.25%. The MLF interest rate cut carries a great significance as a number of other financing policies are derived from the rate as a benchmark, the cut could help further stimulate the economy. It is also expected that the PBOC would cut reserve ratios in the near future, the further loosening monetary policy could improve the general business environment and provide support to the markets. That said, Investors should continue to stay cautious as clouds are yet to clear regarding the trade conflict and economic slowdown.

United States

Sino-US trade negotiations showed signs of resolution, and the improving market sentiment pushed US equities to a historic high. Over the past 5 days ending Thursday, the Dow, S&P 500, and NASDAQ rose 2.32%, 1.57%, and 1.71% respectively. During Asian hours on Thursday, there were rumours that China and the United States will uplift the tariffs in place on both sides in stages, immediately boosting Asian equities, European and US equities also rose early on Thursday. Later on, it was reported that negotiations were still in progress, the time and place of signing the agreement have not yet been set. The US stock market retreated in the afternoon. As for economic data, the US figures were mixed. The October Markit US Service PMI reported a final value of 50.6, missing market expectations. However, the ISM non-manufacturing PMI in the same period reported 54.7, which improved over the previous period and was a positive surprise. Next week, the focus will be on the October US inflation data.

Europe

European markets outperformed global markets over the week. Over the past 5 days ending Thursday, the UK FTSE, French CAC, and German DAX gained nearly 2.2%, over 2.8%, and over 3.3% respectively. Regarding the Brexit drama, the general election will be held on 12^th Dec as the parliament is officially dissolved. While the Conservatives are still expected to lead the House of Commons after the coming election, market participants are waiting for elections results before making further judgements on UK’s economic future. The Bank of England announced no changes to the interest rate as the market expected, and the BoE is unlikely to cut rates in the remaining portion of the year. On the other side of the Channel, the German Market Manufacturing PMI slightly improved by 0.4 points to 42.1. While the figures are improving, the economic leader in the EU is still experiencing a contraction in the manufacturing sector for 9 consecutive months. More European economic data will be released next week, with multiple CPI and GDP figures coming out.

China

Driven by the progress in Sino-US trade negotiations, Hong Kong equities had a strong performance, the Hang Seng Index rose nearly 2% over the week. The PBOC lower the interest rate of MLF and it support the market sentiment. Also, sources reported that China and the United States would cancel the imposed tariffs in stages. The optimistic sentiment pushed the HSI to break through 200-day moving average, briefing hitting the 27900 level intraday. However, the Index retracted on Friday. Another focus this week is the strengthening of the Renminbi. At the moment, the mid price of the USD/CNH has broken though the 7 level and reported at 6.9813. Next week, there will be data on China's fixed asset investment, retail sales and industrial production.

US

The US corporate earnings period is slowly coming to an end. Among the 347 index constituents that have announced their Q3 results, more than 80% outperformed market expectations, and the overall market recorded a slight earnings increase YoY. Apple's quarterly results and sales exceeded market estimates, propelling the stock price upwards, and providing support to the tech sector. Coupling this with the better than expected US economic data, the S&P 500 hit a record high. Over the past 5 days ending Thursday, the Dow and S&P 500 gained 0.9%, while the tech based NASDAQ recorded a more significant increase of 1.3%. The FOMC meeting was held this week, interest rates were cut by 25 basis points as the market expected. The Fed Chairman Powell said that as long as inflation stays low, the Fed will not raise interest rates. According to the Bloomberg interest rate futures data, the probability of a rate cut in December has decreased to around 20%, which means that there is a low chance of another rate cut in 2019. In terms of economic figures, driven by strong consumer spending growth, the US GDP grew at an annual rate of 1.9% in Q3, surpassing the market expectation of 1.6%. US employment data will be released tonight, and we will get more data like services PMI next week.

Europe

As the Pound regained strength, the Pound denominated UK stock market fell under pressure, the UK FTSE 100 index fell more than 1% over the past 5 days ending Thursday, while the pan-European STOXX 600 index fell 0.16%. In the UK, after Prime Minister Boris Johnson accepted the EU's proposal to postpone the Brexit until 31^st January 2020, the House of Commons approved to hold the general election on 12^th December. With worries of a “No-deal Brexit” slowly ebbing out, the Pound regained strength and GBP/USD rebounded near the 1.30 level. In terms of economic data, the Eurozone's Q3 GDP rose 0.2% QoQ, outperforming expectations, while the October CPI rose 0.2% MoM, which was slightly higher than the expected 0.1%, indicating that the overall economic environment might have improved. The Bank of England will hold a meeting on interest rates next week.

China

As for China and Hong Kong markets this week, Hong Kong stocks posted a strong performance, while the mainland stocks underperformed. Over the past 5 days ending Thursday, the Hang Seng Index gained nearly 1%. At the beginning of this week, US President Donald Trump claimed that the Sino-US trade negotiations were progressing faster than planned. Unfortunately, the APEC summit was canceled by Chile, there are worries that the two powers might be unable to sign the first stage of the trade deal due to the cancellation. Trump later reassured that both sides are looking for new locations for the sign off. As we continue to get mixed signals from the official and Caixin manufacturing PMIs released this week, the foreign exchange reserves, import and export data releasing next week might offer a better insight into the economy.

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Even though drivers in EM return remained intact, but downside risks have yet to subdue, the trade talk progression could prove to be detrimental to the year-end performance. Our overall EM outlook for the year remains neutral.

With the global inflation rate for major economies staying on the lower end apart from China, EM central banks have more wriggle room in taking advantage of monetary easing in supporting markets. As the trade war goes on, to insulate them from the trade war risks, EM economies are looking for alternative ways out to further advance economic development, mainly through governmental investment and internal consumption. As a recurring theme, we continue to see more non-monetary policies adopted to incite business investment and personal consumption. The Indian parliament just passed the Bill to officially cut corporate tax rates by 8-10%, which could drive the local economy in the mid to long-term by attracting more investments in the fastest growing Asian country.

However with political landscapes getting more complicated, radical reforms are also facing stronger headwinds than ever. In Brazil, the proposed reforms to the public sector and tax system were postponed due to the fear of public backlash, which casts a shadow over the economic future of the country. Other EM economies are also considering to adopt expansionary budgeting, deploying stimulus packages to counteract the effects of the slowing global economy. Other than that, as production lines consolidation continue, beneficiaries like Vietnam and Taiwan should continue to enjoy impacts of the trade war. Investors would need to exercise caution before investing in EM with the heightened risk in general.

The Bloomberg Barclays Global Aggregate Bond Index fell 0.76%, while US Investment Grade, Emerging Markets US dollar, and US High-yield bond indexes rose 0.25%, 0.03%, and 0.33% respectively. As trade tensions continue to lighten over the month, capital returned to equity markets, bringing about the mixed performance. Although according to the recently published Fed Beige Book, the economy is still doing well, lowering the chances of further rate cuts in the short to mid-term, the ongoing quantitative easing in form of the Asset Purchasing Programme and balance sheet expansion should continue to provide support to bond prices.

Equity markets remain volatile and news sensitive. Although the US trade representatives on multiple occasions claimed that the first stage Sino-US trade deal will be signed before the end of the year, but there has been a lack of concrete evidence of that happening. Via the state media, the Chinese government has repeatedly requested for a complete uplift of existing tariffs as a prerequisite for signing the partial deal, which could prove to be an obstacle to signing off the trade deal in the short term. Thus, as we close in the end of the year, we expect that trading volume to thin out and volatility to increase. Taking high quality debt in the portfolio could reduce volatility while enhancing the yield. Investors who want to avoid the temporary market turbulence should consider increasing their bond exposure in their portfolio to improve their risk adjusted returns.

United States

The holiday mood set in, stock trading volume was light over the week with market closures on Christmas, yet major US indexes continued to break new highs. Over the past 5 days ending Thursday, the Dow and the S&P 500 rose more than 1%, while the NASDAQ gained more than 2%. Benefiting from the improving Sino-US trade sentiment, the NASDAQ broke the 9,000 level for the first time in history; The PHLX Semiconductor Index, representing the semiconductor sector, has risen more than 20% since the beginning of December. US President Trump has stated that a signing ceremony for the China-US trade agreement will be held. The US economic data released over the week was satisfactory. The University of Michigan market sentiment index further rose to 99.3, and the initial jobless claims figure was 222,000, which was also lower than the revised figure of 235,000 last week. Data to watch next week include the consumer confidence index and ISM manufacturing index.

Europe

European equity markets got mixed performance. Over the past 5 days ending Thursday, the UK FTSE 100 and the French CAC rose 1.4% and 1.0% respectively, but the German DAX fell 0.8%. With regards to Brexit, the House of Commons just passed the Withdrawal Agreement Bill, and we expect getting Brexit done at the end of January as scheduled. In addition, there are reports that EU negotiators will use "restricted access to the EU market" as the bargaining chip for next year's Brexit negotiations, so as to ensure UK compliance with the EU legal framework. The market expects that there will be a larger tug of war between both sides after the official Brexit date. On the economic data side, the consumer confidence index released this week fell to the negative 8.1 level. Next week, investors may pay attention to data like the German CPI and the finalized Eurozone manufacturing index figure.

China

Over the past 5 days ending Thursday, the Chinese and Hong Kong stock markets have shown limited movement, the CSI 300 Index rose 0.22%, while the HSI fell slightly by 0.07%. Earlier, Trump said that he would arrange both parties to sign the trade agreement, but the market sentiment in China and Hong Kong remained cautious. On the other hand, Chinese Premier Li Keqiang mentioned at the beginning of the week that the government will further utilize various measures such as RRR cuts, targeted RRR cuts, refinancing, and rediscounts to reduce actual interest rates and financing costs, so as to ease the financing difficulties of small and micro enterprises. Markets expect these liquidity adjustment measures to be adopted in the near future. As for economic data, the YoY change in Chinese industrial profits in November rose 5.4%, the largest increase in eight months, indicating a rebound in profit growth. The official manufacturing, non-manufacturing indexes, and Caixin manufacturing index will be released next week.

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 The indexes rose in line with the improving global sentiment, but fundamental issues continue to persist in the Japanese economy, as recent economic figures were rather poor. Q3 GDP growth came in at 0.2% QoQ missing market estimates, November Manufacturing PMI continued to stay in the contraction range, corporate confidence remained weak, industrial production went negative again, and retail figures missed expectations. Overall, the short term economic outlook in Japan remains negative. As we have yet to see significant recovery in the Japanese economy, we retain our neutral rating for the market for the remaining portion of 2019.

That said, it was reported that Japan’s Prime Minister Shinzo Abe ordered its cabinet to compile a comprehensive economic stimulus package for the coming year, amounting to a total of USD 120 billion, which is the first stimulus package since 2016. While some might be concerned over the mounting debt load of the island country, the whole package should provide much needed momentum in the stagnant country. If the plan was adopted and carried out in the coming year, we expect the Japanese economy to further grow benefiting from the governmental support. With Tokyo Olympic Games 2020 held in the country, growth drivers are present in the Japanese economy, the outlook for 2020 is positive.

 Q3 GDP growth was revised up to 2.1% YoY, which further improved market sentiment with positive news over the trade war. Throughout November, it was reported numerous times that the 1^st stage of the Sino-US trade agreement will be signed soon, driving the markets to historic heights.

From the fundamental perspective, the latest Fed Beige Book gave the markets better insight into current market conditions. According to the report, Fed members see the economy expanding moderately and the manufacturing sector has shown signs of improvement with limited inflation pressure. Thus, the Fed is unlikely to change rates in the short to mid-term. Other economic indicators also find that the US economy is showing signs of stabilisation. Apart from the ISM PMI figures, other PMIs regained momentum and rebounded, hinting at a brighter outlook on the US economy.

On the monetary side, the Fed is unlikely to cut rates in December. While this might provide less support to the markets, the ongoing Fed balance sheet expansion will likely continue to boost asset prices across the board. In the past, markets tend to perform better with lower volatility during periods of Fed balance sheet expansions, when compared to periods of flat or reduction in the Fed balance sheet. As QE is expected to continue well into 2020 Q2, we could expect a decent equity performance until then, despite the relatively higher current valuation. The US market remains the go-to equity market with the earnings to back its performance, but caution is always needed in volatile markets.

The UK is expected to wrap up the whole Brexit matter that lasted for more than 3 years and hold their general elections on 12^th Dec 2019. The latest polls showed that the Conservatives will likely get around 43% of votes, which is expected to translate to a majority in the parliament. The Cons are poised to regain control of the parliament, the “Johnson Deal” approved by the EU will likely pass though the parliament. A timely Brexit stemming from this will likely further clear up the situation in Europe, politicians can finally move on to more fundamental issues with the economy, climate, society, and so on.

As for fundamentals, the valuation of the European equity markets has been catching up recently, with forward price-to-earnings ratios closing in of that of US equities. With uncertainties cleared, we expect European equities to extend further gains in the short to mid-term via valuation recovery. Yet, the fundamental issues of the economy stays unresolved. Eurozone manufacturing PMI remained in the contraction zone for ten consecutive months, while the German Manufacturing PMI continued to improve, it still stayed in the contraction zone. The Euro Area Economic Sentiment Indicator, a leading indicator of Eurozone economy, slightly recovered to 101.3 in November, it remains to be seen if the downtrend since late 2017 could be reverted. As the fundamentals in the European economy remained weak and showed no visible signs of recovery, we could see a visible but limited upside for the European markets in the short to mid-term.

United States 

China and the United States earlier reached the first phase of a trade agreement, avoiding a new round of tariffs on China and Canada on December 15. The news is positive for market sentiment. The three major US stock indexes rose about 1% to 2% in the past 5 days as of this Thursday. In addition to the good news from China-US trade relations, the economic data released by the United States this week is generally satisfactory, including the numbers of industrial production and manufacturing production in November changed from negative to positive. On the other hand, U.S. President Trump's impeachment charge was approved by the House of Representatives. Trump became the third president to be impeached in history. The impeachment case will be heard in the Senate early next year. The US-Mexico-Canada agreement (USMCA) was implemented. The US Senate passed the Domestic Expenditure Act, which supports the government's funding needs throughout the fiscal year. Important data which will announce next week such as the core PCE and the University of Michigan market sentiment index.

Europe

In Europe, the UK Market rise the most. In the past 5 days as of this Thursday, the FTSE 100 index has risen more than 4%, the French CAC index has only increased by 1.5%, and the German DAX index has fallen slightly by 0.07%. After the British Conservative Party won a major victory in the general election, British Prime Minister Johnson also announced the government agenda, saying that legislation would allow Britain to leave the European Union on January 31, and set the implementation period until the end of 2020. The news supported the UK stock market. On the other hand, for the UK's unexpected extension of the Brexit transition period, the EU warned of risks, and the news affected the GBP to soften to about 1.30. In addition, the Bank of England kept the benchmark interest rate unchanged at 0.75%. Next week, the market may focus on the EU consumer confidence index.

China 

China and Hong Kong stock markets generally performed well this week, with indexes such as the HSI and the CSI 300 recorded rise. As for the China-US trade agreement, the US Treasury Secretary stated that the two sides will announce and sign it in early January next year. It is reported that China has re-purchased US soybeans this week, and plans to waive tariffs on agricultural products from the United States in the future. Mainland China's economic data improved this week, and the year-on-year growth rate of production and retail sales in November accelerated faster than last month. The market is concerned about whether the mainland will relax monetary policy before the Lunar New Year, such as lowering RRR or MLF rates.

• Recent activities include : Harris Fraser held a Press Conference on “2020 Global Investment Market Outlook”, Attended Bloomberg Businessweek/Chinese Edition Top Fund Awards 2019
• Columns, media interview and online channels : “TVB News”,“TVB Big Big VIP”, “Now  FINTERVIEW”, “iCable Finance”, “iCable News”, “Capital”, “SingTao Newspaper”, “Sing Tao Investment Weekly”, “Headlines News”  , “ET Net”, “OrangeNews”, “Quamnet” and online videos produced by Harris Fraser Group. (including but not limited to the above)