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16.12.2019

Weekly market overview: Markets rise as US and China strike a phase one deal

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Trump signed a phase one deal with China to avert December tariffs

  • Trump signed a phase one deal with China to avert December tariffs
  • Britain's Conservative Party wins major election
  • Greenback lower against high-yielding currencies
  • FOMC indicates little chance of a cut or increase in 2020
  • US CPI rose higher than expected in November
  • EURUSD registers four-month highs around 1.12
  • Brent reached three-month highs above $65.70

Asian equities

After a nervous and volatile trading for the most part of the week, Asian shares jumped on Friday amid a last-gasp US-China trade deal and a major election win by Britain's Conservative Party. Earlier in the week, China told government offices to remove all foreign computer equipment while politicians lash out at U.S. interference in Hong Kong affairs. Also, China promised to stepped up US soybean purchases. Trump signaled the two counties were very close to the deal. And finally, Trump signed a phase one deal with China to avert December tariffs. The United States has agreed to reduce some tariffs on Chinese goods and delay a tranche of tariffs and China has agreed to make $50 billion in agricultural purchases in 2020 as part of the deal. Against this backdrop, Japan's Nikkei 225 climbed 2.55% to a 14-month high. The index was additionally supported by a rally in Fast Retailing stocks which soared nearly 4.5%. South Korean Kospi rose by 1.54% amid a rise in SK Hynix shares by 5.4%. Chinese Shanghai composite gained 1.78% while Hong Kong’s Hang Seng index soared 2.57%. Australian S&P/ASX 200 gained 0.46%. Overall, the MSCI Asia ex-Japan index jumped 1.61% higher.


US equities

US stocks ended a volatile week higher due to a rally on Friday, with major indices registering fresh records amid reports of a partial deal reached between the U.S. and China. However, markets retraced gains by the end of the day as investors digested the details of a phase one trade deal between China and the U.S. as a result, the Dow gained 0.01%, the S&P 500 climbed 0.01% and Nasdaq Composite advanced 0.20%. the muted reaction was probably due to the fact investors might had been expected something more from the deal.

Currencies

It was a busy and volatile week for dollar crosses, with the greenback being lower against high-yielding currencies amid a series of mostly positive trade-related news headlines. Mostly, the selling pressure came from the Federal reserve meeting as the central bank excluded the possibility of rate hikes in 2020. At the same time, in its the dot plot, the FOMC indicated little chance of a cut or increase in 2020. The Committee said that the current stance of monetary policy was appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the central bank’s 2% objective. As for forecasts, the committee projected 2019 to finish with a 2.2% gain in GDP, followed in consecutive years by 2%, 1.9% and 1.8% gains.

On the data front, U.S. small business optimism saw a strong spike in November, third-quarter labor costs were revised down and productivity growth turned out weak. Consumer prices increased more than expected in November. Inflation rose 0.3% last month versus +0.4% previously. In the 12 months through November, the CPI rose higher than expected, by 2.1% after gaining 1.8% in October. The core CPI rose by 0.2%, matching October’s rise. US weekly jobless claims rose to a more than 2-year high - initial claims surged to 252,000 for the week ended December 7, the highest reading since September 2017. Producer prices were unchanged in November. U.S. retail sales rose slightly and were lower than expected in November. Sales rose 0.2% last month versus +0.5% expected. Data for October was revised up to 0.4% instead of gaining 0.3% as previously reported. U.S. import prices rebounded but the underlying trend remained weak. Business inventories climbed 0.2% in October.

As for currencies, EURUSD registered four-month highs around 1.12 as a result of a brief spike on Friday. The pair finished the week in the green, marginally above 1.11. Still, the euro failed to confirm a break above the 200-DMA but validated the 100-DMA as a support area. GBPUSD spiked to 1.5-year highs above 1.35 after the election results confirmed a Tory victory in parliament. Cable saw the third straight week of gains but finished below 1.3350 on Friday, as traders rushed to some profit taking after an aggressive rally on a knee-jerk reaction to the outcome of the vote.

Commodities

Oil prices registered the second weekly gains in a row, with Brent reaching three-month highs around $65.77 on Friday after China and the United States agreed on a phase-one trade agreement, averting new tariffs on some $160 billion in consumer goods that were set to take effect Sunday. China confirmed that it reached a deal on the text of a phase one pact. During the mid-week, the prices declined after the EIA data showed that US commercial crude oil inventories increased by 0.822 million barrels versus the expected draw of 2.763 million barrels. Still, Brent resumed growth fairly quickly as investors were more optimistic about global trade prospects. Data from Baker Hughes showed the first weekly increase in active U.S. oil-rigs in eight weeks. Despite the report pointed to the potential for rise in production, it had little impact on prices amid trade optimism. For the week, Brent ended 1.3% higher.