The overall economic outlook has improved somewhat, as the official manufacturing PMI came in at 50.2, breaking through the 50 level for the first time in 6 months, Caixin PMIs for both manufacturing and services also improved. GDP growth figures continue in a downtrend, we see the economy slowing down as the growth drivers in the economy falter. Investments fell, most notably in the real estate sector due to government policy emphasis on ‘Housing for living, not speculating’; Consumption is also growing at a slower rate as implied by falling retail figures; While the negative PPI, which has been in a downtrend for 5 months, further hints at weakness in exporting sectors due to the ongoing trade war.

Head of the People’s Bank of China Yi Gang commented on market rumors, stating that the Bank will keep monetary policies normalized and will stay away from currency devaluation, zero interest rates and QE. This fuels speculation that the PBOC will not slash reserve ratios in the short term as authorities might see the current economic growth adequate.

On the other hand, Chinese Vice Premier Liu He said that it is necessary to increase “counter-cyclical” adjustments, implying that there might be more economic support policies and markets remained hopeful. Overall, the fundamentals are seemingly turning for the better, the government stimulus to come might be able to revitalize the economy strained by the trade war. That said, as the volatility increases at the end of the year, investors should keep an eye on any new economic data on changes in the economy.

United States 

Driven by news that China and the US could possibly reach the first-phase trade agreement soon, the global stock market performed well over the week, US stocks continue to hit new historic highs. Over the past 5 days ending Thursday, the three major US stock indexes rose 1.2 - 1.7 %. According to the latest report, Trump has signed the phase one trade deal, avoidd applying the new 15 Dec tariffs on China, further boosting market sentiment. On the other hand, the Federal Reserve just held its last FOMC meeting this year and the interest rate was kept unchanged as expected. The Fed’s Dot Plot after the meeting also showed that members generally believed that the interest rate will be kept unchanged throughout. Fed Chairman Powell said that he is open to the idea of expanding the scope of Fed Balance Sheet expansion, but thinks that this is not the time. The market expects the current easing policy to continue into next year, which could further support equity markets. As for presidential impeachment, the Democratic Party announced two impeachment allegations against Trump, including abuse of power and obstruction of Congressional investigations. Key data to watch next week include core PCE figures.

Europe

European stock markets followed global equities and surged. The major stock markets in UK, France, and Germany rose by 1.3 - 1.9% over the past 5 days ending Thursday. The UK elections stayed under the spotlight. At the time of writing, 379 of the 650 seats were announced. The Conservative Party has the absolute upper hand and has secured 202 seats (48 net new gains). The main opposition in Labor only took 128 seats. The latest exit polls have predicted a Conservative victory with 368 out of 650 seats in the House of Commons won, which translates to a parliamentary majority. The other market focus was the first European Central Bank meeting after Lagarde took office, who was quoted saying that there is more ways of inflation measurement, and policymakers should consider a wider range of economic indicators. The market will continue to follow the latest developments in the European Central Bank's monetary policy.

China 

The performance of China and Hong Kong stock markets this week were rather mixed. Hong Kong equities benefitted from external market conditions and rebounded, while the A-shares performance were muted. It was reported that Trump has approved the first phase trade agreement, coupled with the Central Economic Working Conference’s emphasis on steady growth, drove HK equities up sharply, and briefly challenged the 200-day moving average at the 27600 level. Apart from news of ratifying the agreement, there were also rumours that some US negotiators' proposed to reduce the existing US$ 360 billion tariffs on in Chinese goods by as much as 50%. The Central Economic Work Conference ended on Thursday, demanding improvement in quality and effectiveness in next year's fiscal policy, while the keeping flexibility and appropriateness in a stable monetary policy. The news raised market expectations for positive policy measures next year. Data on fixed investment, production and retail will be released next week.

• Recent activities include : Attended Bloomberg Businessweek/Chinese Edition Top Fund Awards 2019, Attended iFAST’s annual symposium 2019 in Berlin Germany
• 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)

South Korea's President Moon Jae-in finally held a discussion with Japanese Prime Minister Shinzo Abe during the ASEAN meeting in Bangkok. As both sides showed preliminary steps towards resolving the feud, higher-level talks may be held later on to mend the relationship.

On the US-Japan front, with progress on the US-Japan trade deal, it is anticipated that Japan can avoid the automobile related tariffs that the US president Trump has repeatedly threatened. That said, the political uncertainties has yet to clear completely, those who wanted to avoid such risks could consider limiting their exposure to the region.

On a side note, although Bank of Japan’s Governor Haruhiko Kuroda said the BoJ will not limit itself to interest rate cuts, it is speculated that the BoJ might follow its global peers and slash interest rates further into negative territory in near future. According to the Bloomberg interest rate futures, there is a 38% chance that there will be a cut in Jan 2020, which might provide additional liquidity and support to the markets. Other than that, fundamental issues remain within the Japanese economy, economic figures continue to show mixed results.

On one hand the Japan October Manufacturing PMI further worsened and stayed in the contraction range. Yet, industrial production went positive YoY, and retail figures exceeded expectations. Overall, the Japan-wide manufacturing sector’s outlook continues to stay negative while the service sector showed better resilience. As we have yet to see significant recovery in the fundamentals, we retain our neutral rating for the market.

 The Bloomberg Barclays Global Aggregate Bond Index rose 0.67%, while US Investment Grade, Emerging Markets US dollar Bonds, and US High-yield bonds rose 0.61%, 0.53%, and 0.81% respectively. Although global trade tensions continued to ease over the month, there is still net positive inflow into the fixed income markets, pushing bond prices up.

The Fed rate cut in October continue to drive the bond market movement. Right after the FOMC meeting and announcement, Fed Chair Powell’s address was surprisingly hawkish, as he claimed that the current interest rate is appropriate, mentioning reduction in external shocks (possibly referring to trade war and Brexit), and referred to economic indicators as acceptable. Given that the Fed describes the current economy as solid and rising in a strong pace, the market speculates that the October rate cut will be the last cut in year 2019.

Although interest rates are expected to hold constant for the remaining portion of the year, dovish policies could still provide additional support to the fixed income markets. Given that the latest round of quantitative easing policies, both the 20B EUR plan for ECB in Europe and the 60B USD plan for Fed in US, will at least continue until mid-2020, we still see upside potential in the fixed income markets. Heightened volatility and greater downside risk in the equity markets are still expected even though there are more positive news coming from Europe on Brexit and the trade war. With the continuing rate cuts across the globe, high quality debt continue to provide an opportunity to reduce volatility in the portfolio while enhancing the yield via interest income and capital appreciation.

The global central bank rate cut cycle continued in October. Following the Fed rate cuts in September and October, numerous central banks have followed suit, including key EM economies like India, Turkey, Brazil, Malaysia, and Thailand, which can provide a better support for the local economy.

Other than monetary policies, we continue to see more non-monetary policies being enacted to further incite business investment and personal consumption. The Malaysian plan to extended tax benefits to companies for establishing regional or global hubs in the country is an example for attracting investments and creating skilled job opportunities, targeting to leverage the risks from the Sino-US trade war and convert it to an opportunity, transforming the country’s economy. Other measures are also adopted in EM economies, for example Thailand is also looking into adopting a tax cut for its citizens to boost consumption, while India continues to further tax incentives for corporations and individuals. Similar measures could possibly drive better economic growth for the mid to long-term in spite of global political uncertainty.

Yet, the easing but yet ongoing trade war remains one of the biggest threats to EM economies. While the global manufacturing sector remains shaky fundamentally, Vietnam and Taiwan alike should continue to benefit from the effects of the trade war as production line consolidation continues. Although the general market sentiment has greatly improved with the progress in the Sino-US trade talks, the underlying downside risks have yet to subdue, investors should continue to exercise caution over emerging markets with an emphasis on the trade talk progress. Our view on the overall 2019 EM outlook remains neutral.

United States

Despite the recent decline, US equities remained close to the all-time high. During the week, news on the Sino-US trade negotiation dominated the US stock market sentiment. Over the past 5 days ending Thursday, the S&P 500 and the NASDAQ rose around 0.2% to 0.3%, while the Dow fell slightly by 0.06%. It was reported that the Sino-US trade negotiations was on the verge of breaking in the middle of the week, sparking the largest single day fall for S&P 500 index over the month on Wednesday. US President Trump signed a four-week temporary spending bill to prevent a government shutdown once again, delaying it till December 20. On the monetary side, the US Federal Reserve just released the minutes of the meeting, which showed that the authorities believe that the economic outlook is at great risk. Later, Minneapolis Fed President Kashkari pointed out that he did not believe that a recession would occur, and he expected the economy to continue growing. According to Bloomberg interest rate futures data, the chance of an interest rate cut before the end of the year is zero. Next week, the US will release data on consumer confidence, core PCE and final GDP. In addition, the Fed will also announce the latest economic Beige Book.

Europe

European stocks underperformed global markets. . Over the past 5 days ending Thursday, the UK, French, and German stock markets all fell around 0.3% to 0.7%. For the ECB's policy, the bank's chief economist Lane claims that the Bank is yet to reach the end of the road. The general market also expects the central bank to have room to loosening monetary policies in the future. As for economic data, the Eurozone Consumer Confidence Index released this week was -7.2, which was a positive surprise over the -7.3 market expectation and an improvement over the -7.6 last month. There will be more unemployment and inflation data for the Eurozone next week.

China

The performance of the Hong Kong stock market this week was mixed, but the Hang Send Index still recorded a slight increase. Chinese and Hong Kong equity investors focused on the Sino-US trade negotiation development over the week. Although State Council Vice Premier Liu He expressed his cautiously optimistic attitude towards reaching the first phase of the trade agreement, the news indicated that the US has not accepted his invitation to China for further talks, market participants remained cautious as a result. However, it was also reported that if the two sides failed to reach an agreement, the United States might postpone the new tariffs scheduled for 15th December. As for economic policies, Premier Li Keqiang agreed that the Chinese economy is inevitably affected by the slowdown in global economic growth, but emphasised that the government will not deploy in strong stimulus. The market should continue focusing on government economic policy directions.

• Recent activities include : Attended iFAST’s annual symposium 2019 in Berlin Germany, visit Mason Privatbank Liechtenstein office in Liechtenstein, joined The Private Wealth Asia Forum in Hong Kong.
• Media include : SCMP、imoney、AAStocks、TVB、HKEJ、MingPao、HKET、Metro Broadcast、Commercial Radio Hong Kong etc (including but not limited to the above)
• Publishing on newspapers, magazines and online sections : “Capital”, “SingTao Newspaper”, “Sing Tao Investment Weekly”, “Headlines News” , “ET Net”, “OrangeNews”, “Quamnet” and online videos collaborated by Mason Securities limited and Harris Fraser Group.

Brexit matters continue to take the centre stage. Previously, many were worried that the UK would risk a no-deal Brexit, as the UK Prime Minister Boris Johnson has repeatedly emphasised the need for the UK to leave on 31^st Oct 2019 “no matter the circumstances”. Fortunately, the EU did eventually give green light to a further extension of the Brexit deadline till the end of January 2020. With the snap general election called and passed in the parliament, the parliamentary elections should bring forth a conclusion to the whole Brexit debacle. While it is currently too early to predict the outcome of the election, a hard Brexit is less likely, and the ultimate plan should not deviate far from the existing ones.

Given that the European markets have been relatively undervalued due to various geopolitical risks, both the UK and the European markets are possibly set for gains via valuation recovery. Yet, the rally might be limited as the fundamental factors are left unresolved. Eurozone manufacturing PMI remained in the contraction zone for nine consecutive months, while the Euro Area Economic Sentiment Indicator, a leading indicator of Eurozone economy, further dropped to 100.8 in October, continuing the downtrend from late 2017.

As the fundamental growth drivers for the European economy are still missing, we should see a visible but limited upside for the European markets in the short to mid-term. Investors could look out for significant changes to the economic indicators in the coming months before investing for the long term.

Fed chair Powell’s hawkish remarks after the FOMC meeting, plus dropping the “Act as appropriate to sustain the expansion” clause from the Fed statement, lowers the expectation of another rate cut in December. Deriving from the Bloomberg interest rate futures, there is less than 20% chance of another rate cut before the end of 2019. While we might not get another rate cut soon, the Fed balance sheet expansion should continue to provide a healthy support to the markets towards the end of the year. The earnings season gave the market another pleasant surprise. Over 80% of reported S&P 500 constituents posted positive earnings surprises. The strong showing with a limited downward revision on the Q4 outlook allows investors to be more optimistic on US equities.

On the trade war front, a couple of positive news have been circulating, as the US President Trump repeatedly claimed that there has been “faster than expected” progress over the first stage of trade deals, the general atmosphere and sentiment was positive over the trade deal, with the US emphasizing that both sides will sign the first stage of the trade deal.

That said, from a fundamental perspective, we continue to see mixed signals. ISM manufacturing PMI figures continue to stay in the contraction territory, while the Q3 GDP recorded a YoY increase of 1.9% which exceeded market expectations. The US market remains the robust equity market among major markets, but investors should keep an eye on the various leading indicators in the market and continue to stay cautious.

United States

The US stock rally slowed down, as there were doubts on whether China and the United States could reach any agreement as outlined earlier. Over the past 5 days ending Thursday, the three major US stock indexes rose 0.3% - 0.6%. The obstacles in the procurement of agricultural products remains the main issue, which has halted Sino-US trade negotiations. During the week, the US Federal Reserve Chairman Jerome Powell delivered a speech. He claimed that the current monetary policy is appropriate, but the risks are still worthy of attention, while the pressure on the repo market is already under control. The US CPI in October released this week increased slightly to 1.8% YoY, but core inflation fell, as the annual growth rate fell to 2.3%. Next week, there will be data on the US manufacturing PMI and market sentiment. In addition, the Fed will also release the October meeting minutes, which may shed more light on the future monetary policy.

Europe

The European market performance was in line with the global markets. Over the past 5 days ending Thursday, the UK FTSE 100 and German DAX fell 1.53% and 0.82% respectively, while the French CAC rose by 0.17%. In the UK, the latest survey showed that the UK Prime Minister Boris Johnson’s Conservative Party is still leading the Labour Party in polls, but falls short of a majority. The UK's third-quarter GDP and October CPI rose by only 1% and 1.5% respectively, which was slightly worse than expected, the MoM retail sales also recorded an unexpected drop in October, but as the dust settles after the general election in December, we believe that the overall economy outlook will be brighter. Moving on to Continental Europe, Germany's Q3 GDP grew by 0.1% QoQ, which surpassed expectations and also narrowly escaped a technical recession. The Eurozone's Q3 GDP grew by 0.2% QoQ, in line with expectations but growth remains sluggish. More European economic data will be released next week, including Germany's Q3 final GDP and October PPI, as well as the various PMIs in Germany and France.

China

Due to external factors and the disagreements over the trade agreement, Hong Kong stocks performed poorly this week. Over the past 5 days ending Thursday, the Hang Seng Index has fallen 4.8%. The Chinese equities also felt the impact, major stock indices have fallen by 1.49%-1.83% over the period. China released a number of economic data this week, where industrial production, fixed asset investment, and retail sales in October all missed market expectations. However, China's unemployment rate fell to 5.1% and improved. As for trade war matters, it is reported that the Sino-US trade negotiations are currently in a stalemate. The key lies in whether the US agrees to cancel all tariffs under the first-phase trade agreement, or to only cancel the tariffs coming into effect on 15th December; the Chinese on the other hand remained hesitant over the actual figures of agricultural purchases. In addition to paying attention to the trade war development next week, the People's Bank of China will announce the loan prime rate (LPR), and Hong Kong will also announce the unemployment rate in October.

• Recent activities include : Attended iFAST’s annual symposium 2019 in Berlin Germany, visit Mason Privatbank Liechtenstein office in Liechtenstein, joined The Private Wealth Asia Forum in Hong Kong.
• Media include : SCMP、imoney、AAStocks、TVB、HKEJ、MingPao、HKET、Metro Broadcast、Commercial Radio Hong Kong etc (including but not limited to the above)
• Publishing on newspapers, magazines and online sections : “Capital”, “SingTao Newspaper”, “Sing Tao Investment Weekly”, “Headlines News” , “ET Net”, “OrangeNews”, “Quamnet” and online videos collaborated by Mason Securities limited and Harris Fraser Group.

The Bloomberg Barclays Global Aggregate Bond Index and US Investment Grade fell 1.02% and 0.65% respectively, while Emerging Markets US dollar Bonds and US High-yield bonds rose 0.04% and 0.36%. As trade tensions somewhat eased over the month, risk capital moved out of the safer assets over September. That said, we do not think that the trade conflict is going to be truly resolved anytime soon due to fundamental differences, the economy would still face downward pressure, investors should continue to look into high quality bonds in the times of turbulence. With the drop in recent bond prices, this offers an opportunity to further increase the bond exposure in the investment portfolio

Even though the fed did cut interest rates in September, it is expected that there is more than 90% chance that Fed will take at least another cut before the end of the year to support the economy. Sources also suggested that the board is currently considering expanding the Fed balance sheet again soon. With the global central banks entering a possible rate cut cycle and adopting generally dovish policies in light of a possible economic downturn, increasing bond exposure can also capture the capital appreciation.

As we get into the last quarter of the year, we expect heightened volatility and greater downside risk in the equity markets. In light of the late cycle potentially ending, investors should prioritise quality over yield, with a larger portion of fixed income investments held in investment grade bonds, which can help limit volatility while still improving risk adjusted returns.

Source: Bloomberg, Harris Fraser, Data as of :7-10-2019