An erratic week – risk off, then back to risk on

Intermediate
  • The trade talk prospects between the US and China were dealt a blow to start the first week of December as President Trump and other key players highlighted that the phase one trade deal might not be signed as quickly as markets had expected, with the President at one point suggesting a trade deal might not be done until after the next presidential election in November 2020.
  • Furthermore, last week also began with new tariffs from the US on Aluminium and Steel imports from Brazil and Argentina, alongside threats of tariffs on Champagne and cheese from France.
tariffs
  • In addition, tensions were raised in the aftermath of the US bill supporting the Hong Kong pro-democracy protestors being signed into law, with movement on another Congressional bill, backing Uighur Muslims in China’s northwest.
  • This sent markets into a risk off phase through the fist half of the week, with the Japanese Yen strengthening (the USDJPY chart lower) and the Gold chart pushing higher.
  • US and global stock averages were sent plunging lower at the start off the week, through important technical support levels.
  • The middle of the week then saw some contradiction in the comments from President Trump as he indicated that the trade talks were on track. This came alongside some positive soundings from Chinese sources on progress relating to the rolling back of tariffs that are currently on Chinese products, as well as new tariffs that are due to come into force on 15th December.
  • This positive shift saw stock markets rebound in the US and across global averages from the middle of last week, which were reinforced into the end of the week with the posting of the much-watched US Employment report on Friday.
  • The Non-Farm Payroll element was particularly strong with the data from November coming in at 266K jobs added, with expectations of 187K. Also, the Unemployment rate nudged back lower to 3.5%, matching the lowest jobless rate since 1969!
non farm payroll
  • In the UK, the focus has stayed on the run into this week’s general election on Thursday 12th December, with the opinion polls holding sway. A poll on Wednesday saw the Conservative Party edge back further ahead of the Labour Party (with their lead having narrowed in polls earlier in the week).
  • The impact from the polls was certainly seen in the Forex charts, with the improvements in the polls for the Tories enough to see the Pound vs USD spiking higher, above 1.3000 again and to 7-month highs as can be seen in the GBP USD chart. The Euro also went lower against the Pound, with the EURGBP chart at its lowest point for two and a half years.
  • On the equity side, the FTSE 100 index chart has underperformed its European and US counterparts, at least partially driven by the strength in the Pound to USD and also versus the Euro.
  • The Bank of Canada were in play in the middle of the week, leaving their interest rates unchanged as expected, but with a more upbeat outlook for the global economy than the market had expected. This sent the USDCAD Forex rate lower. The more positive tone for Canadian Dollar versus the US Dollar was somewhat undone on Friday, however, after the US and Canadian Employment reports.
Bank of Canada
  • The U.S. impeachment inquiry has reached its expected conclusion with House of Representatives Speaker, Nancy Pelosi, recommending that articles of impeachment are drafted against President Trump. Again, the impact on markets has been muted, as it is NOT expected that the Republican controlled Senate will vote with the required two-thirds majority to impeach the President.
  • OPEC+ met last week on Thursday and Friday and agreed to still deeper production cuts of an additional 500K barrels/ day, which brings the total cuts to 1.7 million barrels/ day. This agreement is due to expire in March 2020.
  • Oil spiked higher on the OPEC+ announcement, with both WTI and Brent Crude Oil moving to near three-month highs.

Key this week

  • Markets and GBPUSD Forex traders will watch for further UK election opinion polls ahead of the critical UK general election on Thursday 12th December. Results are anticipated early Friday morning.
  • As ever, any developments in the US-China trade talks need to be watched keenly, with new tariffs due to be imposed by the US on China on Sunday 15th December. Will President Trump delay these tariffs to keep the phase one talks on track?
  • U.S. articles of impeachment against the President could be voted on and confirmed by the House Judiciary Committee this week, with potential for the full House vote on these articles of impeachment before Christmas.
  • The key Central Bank focus will be on Wednesday’s Federal Reserve and the FOMC interest rate decision in their last meeting of 2019. Will the improvement in the US Employment data in the last week see the Fed shift to a less dovish, de facto more hawkish stance?
  • On Thursday we get Christine Lagarde’s first meeting as European Central Bank (ECB) President, at which no change is expected. But will she set a different tone? The expectation is to move away from any implication of more negative interest rates.
  • The data focus this week is on; Chinese trade data, Japanese Gross Domestic Product (GDP), Chinese, US and German Consumer Price Index (CPI) releases, UK GDP and German ZEW, plus US Retail Sales.
Date Key Macroeconomic Events
09/12/19 Chinese trade data; Japanese GDP
10/12/19 Chinese CPI; UK GDP, Manufacturing and Industrial Production; German ZEW Survey
11/12/19 US CPI; FOMC interest rate decision
12/12/19 ECB interest rate decision; UK general election
13/12/19 US Retail Sales

Editor in chief

Steve Miley has 29 years of financial market experience and as a seasoned expert now has many responsibilities. He is the founder, Director and Primary Analyst at The Market Chartist, the Editor-in...continued

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