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02.12.2019

Weekly market overview: Global investors in limbo amid trade deal uncertainty

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Risk sentiment turned negative in the second part of the week

  • Risk sentiment turned negative in the second part of the week
  • Investors continue to express concerns over an interim trade deal
  • Hong Kong bill is seen as a threat for the US-China trade talks
  • Dollar mixed against the majors, EURUSD flirting with 1.10
  • Oil prices lower for the week after a plunge on Friday
  • Gold may yet resume the upside bias should sentiment turn sour

Asian equities

Risk sentiment was unsustainable last week as contradictory headlines were coming from the US and China. First, investors cheered the news that China was to raise penalties on IP theft, in a sign that Beijing wants to reach a compromise with Trump and resolve further issues. Also, on the positive side, there were reports that the two countries were very close to a phase one deal, with Washington expecting to sign phase one trade deal with Beijing in November. But they didn’t as we see. Trump also confirmed that the deal was in final stages. The sentiment deteriorated on the news that Trump signed a Hong Kong bill and China vowed to retaliate and take strong counter-measures against the US. Regional stocks finished the week on a mixed note, with Hong Kong’s Hang Seng index being the weakest performer both on the day and on the week, as the index lost 2.1% and 0.9%, respectively. China’s the Shanghai Composite index fell 0.6 percent on the day and 0.5 percent on the week. Japan’s Nikkei closed down 0.5 percent on the day, and up 0.8 percent on the week.

US equities

After a rise to fresh all-time highs, U.S. stocks dropped from record levels in the end of the week. The S&P 500, Nasdaq 100 and Dow Jones Industrial Average finished lower in a shortened session on Friday, as trading resumed on Wall Street after the Thanksgiving break. Shares of energy and consumer goods companies were the biggest losers. The S&P 500 Index dipped 0.4%, which was the largest decrease in more than seven weeks. The Nasdaq Composite Index dipped 0.5%, the first retreat in more than a week. The Dow Jones Industrial Average fell 0.4% and registered the lowest level in a week.

The dynamics showed investors needed fresh evidence of progress on a China-U.S. trade deal, as another portion of US tariffs against China due to come into force on December 15. At the start of this week, however, stocks may rise as concerns have eased somehow, mainly due to a recovery in the China’s manufacturing PMI above the 50 handle for the first time since April.

Currencies

It was a mixed week for the dollar amid contradictory signals both from the economy and the trade front. In general, currencies, as well as stocks, were driven mostly by global risk sentiment. Meanwhile, economic updates out of the United States also mattered for traders. As such, the Chicago Fed national activity Index fell to -0.71 in October from -0.45 in the previous month. The U.S. international trade deficit was $66.5B in October, down $4.0B from $70.5B in September. Richmond Fed survey showed that manufacturing activity softened in November while Philly Fed November survey pointed to a continued expansion in nonmanufacturing activity in the region. US consumer confidence fell for fourth consecutive month. S&P Case-Shiller Index showed that home price gains accelerate in September while new home sales fell in October and September data was revised higher. Also, US economy grew at 2.1% annual rate in the third quarter, core capital goods orders post biggest gain in nine months while core personal consumption expenditures increased +0.1% in October. Pending home sales fell 1.7% in October, and Chicago PMI showed region’s economic health deteriorated last month but was better than in October.

Against this backdrop, EURUSD finished flat after a brief dip to October 10 lows around 1.0980. the pair managed to get back above the 1.10 handle but bearish risks persist as long as the common currency remains below the 100-DMA around 1.1070. GBPUSD closed the week on an upbeat footing, with the prices have settled above the 1.29 handle. However, the pound is yet to confirm a break of this level as the momentum looks unsustainable for now. USDJPY jumped to the 109.70 area, where the 100- and 200-DMAs lie, so further upside attempts will likely be limited by this resistance area.

Commodities

Brent crude declined decently after three weeks of modest gains. The prices plunged aggressively on Friday amid low liquidity due to a shortened trading week in the US. Oil traders expressed growing concerns over the fate of the so-called phase one deal between the US and China, with Brent finding a local bottom around $60.30. As a result, the futures turned negative in the weekly charts. Earlier in the week, the additional downside pressure on Brent came from the United States. The EIA report showed that crude oil production in the country registered another all-time high at 12.9 million barrels per day. On Monday, Brent has been making recovery attempts, trying to cling to the $62 handle. Still, bearish risks continue to persist, with traders are getting more nervous ahead of the OPEC+ meeting later this week, Traders fear that the alliance will fail to strike a deal to increase production cuts, which would be a strong selling signal for the market.

Gold prices finished the week marginally higher, mainly due to a jump on Friday as risk aversion intensified in the second half of the week. The yellow metal registered local highs around $1,466, while at the start of the week, the bullion dipped to lows below $1,450. This level serves as the immediate meaningful support for now, with gold prices have been retreating on Monday as positive China data furled risk-on sentiment. Still, the metal could resume the upside bias should risk appetite wane amid fresh trade-related headlines. On the upside, the yellow metal needs to regain the $1,475 area to shrug off the selling pressure in the short term.