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• The sharp fall in Chinese export growth to the US showed tentative signs of bottoming out in November, likely a function of easing trade tensions and lower effective tariff rates compared to earlier this year. Bilateral tariff rates between the US and China were lowered last month following a meeting in South Korea. Meanwhile, US Trade Representative Greer noted yesterday that China was “in compliance” of the latest agreements.
• Chinese exports to the US fell 28.5% Y/Y to $33.8bln in November, an acceleration from -25.1% last month. However, 3mma growth was -26.9%, up from -28.4% prior.
• Although Chinese exports to ASEAN nations such as Vietnam remain firm (at least part of which is assumed to be transhipments to the US), growth has started to roll over in recent months.
• Meanwhile, export growth to the EU remains steady at around 10% Y/Y. Although risks of disinflationary Chinese trade diversion have not fully materialised this year, it is still important to monitor - both for the ECB and European Commission. China’s exports remain highly competitive with weak domestic (and export) price pressures putting downward pressure on the real effective exchange rate, in addition to nominal EURCNH upside seen YTD.
• Yesterday, French President Macron addressed these risks directly: “I’m trying to explain to the Chinese that their trade surplus isn’t sustainable because they’re killing their own clients, notably by importing hardly anything from us any more”….” If they don’t react, in the coming months we Europeans will be obliged to take strong measures and decouple, like the US, like for example tariffs on Chinese products”

• Treasury futures extending lows at the moment with appr 20,000 TYH sold from 112-09 to 07.5 in the last couple minutes.
• The 10Y contract through Nov levels to 112-08.5 (-8) with focus on Nov 5 low of 112-07/Oct 7 low of 112-06.
• German Bunds mirroring declines. No obvious headline trigger, certainly not the latest re: large earthquakes in Japan.

Spillover from hawkish moves in the EUR short end have helped pull GBP 1y1y away from the base of its multi-week range and towards the upper boundary of the wedge formation that we have previously highlighted. November highs were tested earlier.

• Firmer salary indications from the latest REC report on jobs would have also had some hawkish feedthrough, even with the survey (on the whole) pointing to ongoing slack in the labour market.
• A reminder that we highlighted the need for fresh dovish catalysts if we were to see a move lower last week, with weakness in wider core global FI markets (largely centred on hawkish EUR repricing) providing the hawkish impetus in the time since.
• BoE-terminal rate pricing has moved back above 3.40% after threatening a clean break below 3.30% in recent sessions.
• Participants still need to be cognisant of spillover from hawkish moves in wider core global FI, particularly given the potential for relatively heavy received GBP positioning being built up over the past couple of months.
• To the downside, potential multi-week dovish domestic catalysts include dovish messaging alongside an almost fully discounted December BoE rate cut, further deterioration in labour market data and swifter than envisaged progress towards the Bank’s inflation target.

Fig. 1: GBP 1y1y Swaps (%)

Source: MNI - Market News/Bloomberg