Daily reviews

04.03.2019

Mixed-to-positive week for markets amid trade-related headlines

news

Global stocks were mostly higher last week despite some caution over the prospect for striking a trade deal between the US and China. Trump tried to put the oil prices under pressure but OPEC cuts and US sanctions on Iran and Venezuela somehow capped the downside momentum.

  • Mixed risk sentiment amid contradictory signals from geopolitics

  • Dollar upside momentum limited by hopes for striking a trade deal

  • Trump’s tweets swing oil prices, OPEC ignores the pressure

  • Gold registered the biggest weekly decline in more that 1-1/2 years

  • Fed’s Powell sees the economic outlook as ‘generally favorable’

  • China’s factory activity shrinks to 3-year low


German data was fairly positive, lifting the common currency despite a relative strength of the dollar. In general, economic data from the euro area still warrant some caution and suggest the ECB won’t start hiking rates any time soon. Fed’s Powell confirmed that the central bank will stay patient on monetary policy.


Asian equities


At the end of a mixed week, Asian shares edged up on Friday after index publisher MSCI announced it would raise the weight of Chinese mainland shares in its global benchmarks. As a result, China’s blue-chip CSI300 index jumped 2.2 percent to finish off its best week since November 2015. MSCI said it would quadruple the weighting of China’s A-shares in its global benchmarks later this year, potentially drawing more than $80 billion of fresh foreign inflows to the world’s second-biggest economy. Against this backdrop, MSCI’s broadest index of Asia-Pacific shares outside Japan rose by 0.3 percent. Moreover, the Chinese stock registered their best month in nearly four years in February, in large part due to investor optimism over the US-China trade deal after Trump extended China tariff deadline, citing progress in talks.

Japan’s Nikkei 225 ended 1 percent higher and reached fresh 2019 high of 21750, helped by a weaker yen. USDJPY rose strongly over the week, with the pair refreshed mid-December highs above the 112.00 barrier and finished the week around this psychological level amid a better risk sentiment and stronger dollar.


US equities


US markets mostly rose, but the dynamics was unstable during the week. As such, the equities fell on Thursday after Trump warned that he could walk away from a trade deal with China if it were not good enough, fueling concerns over trade talks between the two countries. But afterwards, White House economic adviser Larry Kudlow called progress in the negotiations “fantastic” and said the countries were “heading towards a remarkable, historic deal.” His message managed to calm down investors and opened the way for a recovery in the indices. By the way, some pressure on the stocks came from weak factory activity data from China.

On Friday, The Dow Jones Industrial Average added 205 points, or 0.8%, to 26,117. The S&P 500 index advanced 0.7%, to 2,805, while the Nasdaq Composite Index rose 0.7% at 7,582. Investor optimism was fueled by reports that the US officials were preparing for a summit President Donald Trump and Chinese leader Xi Jinping, at which the two leaders could sign a trade deal. As for specific stocks, Foot Locker Inc. shares saw a strong rally at the end of the trading week, lifted by strong results for its fiscal fourth quarter as the retailer topped earnings estimates. The shares rose by nearly 6% after the report.


Currencies


The week was mixed for the greenback that eased against the European currencies but appreciated against the Japanese yen. The signals from the Fed and the economy were contradictory. Housing starts tumbled to the lowest level in more than two years, while home prices rose at the slowest pace since August 2015, the Conference Board consumer confidence index rose to 131.4 from 121.7 in January, Chicago PMI surged in February as new orders jumped, while incomes fell after a surge in December. The US fourth quarter GDP came in at 2.6% versus the estimate of 2.2%. Meanwhile, Fed’s Powell warned of slower growth and highlighted that the central bank was prepared to adjust balance sheet unwind if needed. Markets took is as a hint at the Federal Reserve readiness to turn to policy easing if economy slows down further. Fed’s Bostic said that he expects one rate rise this year and another in 2020. Clarida stated that the US economy is in a good place. In other news, Trump-Kim summit was cut short after North Korea demanded an end to sanctions.

EURUSD registered the second weekly rise despite the sentiment on the common currency turned sour in the second half of the week. The economic data from the region was relatively positive. German consumer sentiment was stable, consumer prices rose 1.6% in February, import prices rose 0.8%, retail sales rebounded stronger than expected, while euro zone manufacturing sector contracted in February. Bundesbank’s Weidmann said the market view on ECB rates was plausible amid weak data. Mixed data and statements failed to spark a uniform market reaction, while the unstable risk sentiment capped the upside impetus in the pair. The prices rose marginally above the 1.14 figure but failed to keep gains and retreated. At the same time, the pair managed to stay above the 1.13 important support which shows the dollar bulls remain on the defensive in general.


Commodities


Brent crude depreciated strongly last week, though traded close to the November highs above the $67 figure. The barrel finished below the $65 support. Early in the week, the market was hit by Trump’s tweet. The US President said oil prices were getting to high and called on OPEC to ‘relax and take in easy’. But the barrel changed its course fairly quickly and switched to a rebound mode as Saudi Arabia made it clear that OPEC will continue to cut its output despite the pressure from Trump who wants to see lower gasoline prices ahead of 2020 elections. Meanwhile, the US data was mixed. US commercial crude oil inventories decreased by 8.6 million barrels but the report failed to inspire investors as production increased to another record high of 12.1 million barrels per day. In general, the market is supported by US sanctions on Iran and Venezuela and OPEC’s intention to proceed with its output cuts. At the same time, traders continue to closely monitor developments in the US-China trade talks. Fresh positive signals from this front could spark a risk rally, which will support the crude oil market. Technically, Brent needs to regain the $66 figure in order to climb back to recent highs.

Gold prices turned lower aggressively last week, with the priced declined from above $1,332, down to $1,290. The risk sentiment was unstable, with investors were nervous about the conflict between India and Pakistan and relations between the US and North Korea. Also, investor optimism over the US-China trade deal started to wane after the US trade representative Robert Lighthizer said that he foresaw long-term hurdles ahead. A more downbeat sentiment was also due to poor economic data from China as factory activity declined d to a three-year low in February. On Friday, the bullion fell more than 1% to the lowest since January and registered the biggest weekly decline in more that 1-1/2 years as the dollar rose across the board and global stock advances amid a better risk sentiment. Traders rushed to take profit in gold amid the rising USD and Treasury yields. Additional pressure on the yellow metal came from the Fed’s statements on hikes that look still to be on the menu, given the relatively strong data.