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09.12.2019

Weekly market overview: Stocks reversed earlier losses, dollar remained on the defensive

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Trump fueled risk aversion across the markets by his threats

  • Trump fueled risk aversion across the markets by his threats
  • Trade deal hopes still cap the selling pressure on risky assets
  • The odds of further escalation in the trade war remains elevated
  • China PMIs eased concerns over the state of the economy
  • US employment market stays robust and healthy
  • Strong jobs data failed to bring the USD back in the green
  • Oil traders cheer the decision of OPEC+, prices see strong gains

Asian equities

Asian stocks managed to recover on Friday and thus finished a dismal week on an upbeat note. In Japan, the Nikkei 225 rose 0.23% to 23,354.40. China's Shanghai Composite added 0.43% to 2,912.01 while in Hong Kong, the Hang Seng jumped over 1.00% to 26,498.37. Earlier in the week, Trump spurred a massive risk aversion as he said it might be better to wait until after 2020 election for a China trade deal, which increased the odds of further escalation in the trade conflict. Still, the US leader noted later that trade talks with China were going very well, while China reported it was in close contact with U.S. on trade and urged tariffs cut. At the same time, China warned the U.S. over Uighur bill, which raised doubts over early trade deal. In other words, investors continued to receive mixed signals from this front. Meanwhile, the data showed that activity in China’s services sector accelerated to a seven-month high in November. The Caixin/Markit services PMI rose to 53.5 last month, the quickest pace since April, from 51.1 in October. The November reading for the official non-manufacturing PMI also picked up from a multi-year low. Caixin’s composite manufacturing and services PMI rose to 53.2 in November from 52.0 in the previous month, marking the highest reading since February 2018.

US equities

After a mostly lackluster week, US stocks jumped on Friday as investors were cheering the Labor Department’s November jobs report which came in stronger than expected. Also, the University of Michigan released its consumer sentiment survey for December, which also topped expectations – the index rose to 99.2 from 96.7 in November.

The Dow Jones Industrial Average was up 1.2%, with Friday’s performance being the best since early-October. The S&P 500 closed 0.9% - its biggest one-day gain since October 15, while the Nasdaq Composite jumped 1%. As a result, the S&P 500 reversed weekly loses to end 0.16% higher. The Dow and the Nasdaq pared some weekly losses, but still ended marginally lower in the weekly charts. Earlier, stocks suffered from Trump’s protectionist rhetoric, with the US vowed 100% tariffs on French Champagne, cheese, handbags over digital tax. The threat of postponing the deal until after the 2020 election also weighed the markets in the first half of the week.

Currencies

The greenback was lower for the week against major counterparts, as the disappointment from weak business sentiment data outweighed other positive developments. The US November manufacturing PMI came in at a 52.6 in November, up from 51.3 in October, to signal the strongest improvement in the health of the manufacturing sector since April. Meanwhile, the latest ISM manufacturing reading came in at 48.1 versus an expectation of 49.4 and the previous month’s reading of 48.3. U.S. services sector activity slowed more than expected in November mostly amid lingering concerns over the trade war. In particular, the index fell to a reading of 53.9 in last month from 54.7 in October. The ADP data showed job growth slowed substantially in November, with private payrolls increasing by just 67,000. U.S. trade deficit narrowed to 1-1/2-year low on weak imports and exports while weekly jobless claims drop to seven-month low and October wholesale inventories were revised down. Meanwhile, NFP jobs growth surged by 266, 000 in November, which served as a major catalyst for the dollar at the end of the week. Still, the currency failed to reverse its earlier losses and finished in the negative territory.

Apart from mixed economic data, Trump’s rhetoric sent the dollar lower. The US President once again called the Federal Reserve to lower rates and loosen its policies. Against this backdrop, EURUSD briefly jumped above the 1.1115 area and finished the week around 1.1060. GBPUSD rallied to 1.3165 and closed not far from the local highs while the USDJPY pair was rejected from the 109.70 area and dipped to 108.55.

Commodities

Oil prices recorded the largest gains since June following OPEC’s decision to make deeper production cuts and extend the deal until the end of the first quarter of 2020. The organization and its allies agreed to steepen production cuts by an additional 500,000 barrels a day, bringing the total cuts to 1.7 million barrels daily. The market was also boosted by strong Chinese manufacturing data and a decent drop in U.S. crude stocks. U.S. commercial crude oil inventories decreased by 4.856 million barrels from the previous week, more than the market expected drop of 1.734 million barrels. In the days to come, traders will further digest the message from OPEC+ and will also continue to monitor the developments surrounding the U.S.-China trade deal. Technically, Brent needs to confirm a break above the $64 handle in order to target the $65 level once again.