Biden/Xi 

"Let your plans be dark and impenetrable as night, and when you move, fall like a thunderbolt." - Sun Tzu  

San Francisco looked more like downtown Shanghai for the arrival of the most powerful men in the world than the city of the ‘49s. That alone tells you something about the power shift, and the US today versus say 30 years ago, when it would have offered a decidedly comely, apple pie American welcome to a foreign dignitary. US-China talks between leaders Biden and Xi did produce some results – resumption of military communications that were interrupted in 2022 following the visit to Taiwan by then House Speaker Nancy Pelosi. They also made progress on narcotics. This is small fry – key issues remain unresolved and in many ways unresolvable...great power dynamics are at play.  

But just look at the language - “exasperation” from Xi over US officials mentioning exact dates for the invasion of Taiwan. According to a US official quoted by the FT, Xi said there are “no such plans”.   

Ok, sure. ‘No of course we don’t want to invade...why would you think that!?”  There are other ways for sure – Taiwan’s election on Jan 13th could prove to mark a new direction in cross-strait ties.  

Indices 

European stock indices paused a bit early on Thursday to cement gains; Wall Street eked out another small gain to build on the recent rally. The FTSE 100 struggled to make headway as Burberry slumped around 10% after warning profits would be at the low end of guidance as luxury demand slowed. The read-across for luxury stocks weighed on the CAC in Paris, whilst the DAX managed to rise as Siemens posted record profits. 

Yields 

Having come under big pressure from the US inflation number, tried to rally as US retail sales were shown to have risen strongly in September. But us producer price inflation backed up the consumer data – PPI fell 0.5% month-on-month, the biggest fall since April 2020. 

Rates and Data 

San Francisco Fed president Mary Daly – among the most hawkish members of the FOMC – sought to push back a little against the market narrative. Rate cuts are “not happening for a while”, she said. The market is now pricing cuts in May, and 28% chance of one in March. Elsewhere, the Senate passed a stop-gap funding bill until January 19th. Weekly unemployment claims data from the US and industrial production figures will be the key economic releases later. We hear from the Fed’s Barr, Cook, Williams and Waller – looking for pushback on the market narrative. 

Dollar Gains, Oil Slips 

Following Friday’s meltdown the dollar made for a second day of gains with DXY futs rallying off the 103.80 area to 104.40. Cable fell in lockstep with the stronger dollar move – GBPUSD slipping further below the 200-day line at 1.2440 having failed to cement the move north of the level yesterday. Rising 21-day EMA signals momentum is probably still with the bulls.  

Oil prices fell for a second day as US commercial crude inventories rose by 3.6 million barrels last week, according to the EIA.