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21.01.2020

Weekly market overview: The US and China sign a phase one deal, risk sentiment buoyed

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Most Asian stocks saw decent gains for the week

  • Most Asian stocks saw decent gains for the week
  • China’s economy grew by 6.1% in 2019
  • Dollar had a positive week due to strong economic data
  • US retail sales increased in December while November data was revised up
  • Oil prices lower for the week despite a recovery from lows.

Asian equities
The main Asia Pacific stock indexes finished higher last week. The exception were the Chinese stocks despite the most themes dominating the headlines were positive developments on the geopolitical and economic fronts. In part, the weakness could be due to a rising yuan. China’s Shanghai Index was down 0.54% for the week. The US and China have finally signed a phase one trade deal. The Trump administration said it aimed to start negotiating the next piece of the trade agreement before the November 2020 election. Also, the U.S. removed China from its currency manipulator list. The data showed that China’s economy grew by 6.1% in 2019, meeting expectations even amid a trade conflict with the U.S. In other stocks, the benchmark Australian index reached an all-time high, exceeding the 7000 level for the first time ever. The S&P/ASX 200 Index finished the week 1.95% higher. Japan’s Nikkei 225 was up 0.80% for the week. South Korea’s KOSPI Index added 2.00% and Hong Kong’s Hang Seng Index closed 1.46% higher.

US equities
Wall Street indexes climbed to fresh all-time highs on Friday, with major benchmarks saw their strongest weekly gains since August. The upbeat sentiment was due to the signing of a partial trade deal and upbeat U.S. housing data as well as signs of resilience in the Chinese economy. U.S. homebuilding rose to a 13-year high in December, suggesting the housing market recovery was back on track late last year. As a result, all three main indexes closed at record highs on Friday. The Dow Jones Industrial Average rose 0.17% to finish at 29,348.1 points, while the S&P 500 rose 0.39% to 3,329.62. The Nasdaq Composite gained 0.34% to 9,388.94. For the week, the S&P 500 added 1.96%, the Dow rose 1.82% and the Nasdaq gained 2.29%. in individual stocks, Google-parent Alphabet Inc rallied 2.0% on the news that the giant has become the fourth U.S. company to top a market value of $1 trillion

Currencies
It was a fairly positive week for the dollar due to strong economic data out of the US and positive trade developments between the US and China. USD bulls also cheered the news that U.S. Treasury dropped China currency manipulator label ahead of trade deal signing. On the data front, small business optimism declined last month but still remained historically strong in 2019. Consumer prices rose modestly in December. PPI showed some increase in US wholesale inflation, while Empire State manufacturing survey rose to 4.8 in January versus 3.5 in December. US retail sales increased in December while November data was revised up. Meanwhile, Philly Fed Index rumps more than expected this month, to 17.0 versus 2.4 in December. Import prices rose 0.3% in December while weekly jobless claims drop more than expected. U.S. housing starts came in at 13-year high, job openings post biggest drop in more than four years, while manufacturing output rose unexpectedly and consumer sentiment index slipped to 99.1 in January.

As for the Fed, Harker said the economy looked pretty good, with inflation being on track for a 2% target. Fed’s Rosengren warned of risks to central bank’s almost ideal economic outlook, while Bostic said he saw no overheating and no reason to raise rates. George noted that last year’s rate cuts may need to be reversed.

Commodities
Oil prices gained on Friday but were lower for the week after steep losses previously. Brent failed to stage a rally despite the China-U.S. trade deal and Senate approval of the U.S.-Mexico-Canada trade pact. Brent saw a weekly loss of about 0.2%. Oil futures declined on Wednesday after weekly government data out of the US revealed decent increases in domestic supplies of gasoline and distillates. The Energy Information Administration data showed supply increases of 6.7 million barrels for gasoline and 8.2 million barrels for distillates for the week ended January 10. On Friday, the positive bias was capped by the Baker Hughes report that showed that the number of active U.S. oil rigs rose by 14 to 673 last week, following declines in each of the previous three weeks.

As a result, Brent crude failed to see sustained gains above the $65 handle and retreated marginally below this level by the end of the week. Still, the futures managed to recover from one-month lows around $63.50, registered earlier. On the positive side, strong China data and a trade deal between the US and China supported the market. On the other hand, the easing geopolitical tensions in the Middle East coupled with generally stronger dollar curbed investor optimism and prevented Brent from a firm break above the $65 handle which remains in market focus.