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23.12.2019

Weekly market overview: Markets price in a phase one deal, oil corrects lower

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Asian stocks were mostly higher during the week

  • Asian stocks were mostly higher during the week
  • China and the U.S. signal readiness to sign off on phase one trade agreement
  • US stocks saw the biggest weekly percentage gain since early September
  • Dollar gained against major rivals in the weekly charts
  • Brexit concerns reemerged and put the European currencies under pressure
  • Oil prices correct lower after a string rejection from highs

Asian equities

Asia Pacific stocks were mostly higher last week. After a slow start, the markets edged mostly higher as investors were following the bullish signals from Wall Street. The regional stocks were a mixed initial reaction to the reports that China and the U.S. announced they were set to sign a phase one trade deal. For the week, Japan’s Nikkei 225 Index was 0.86% down. South Korea’s Kospi finished 1.56% higher and Hong Kong’s Hang Seng Index closed up +0.66%. China’s Shanghai Index rose by 1.26% for the week and Australia’s S&P/ASX 200 finished up 1.14%.

The markets were partially supported by positive economic data out of China, where the industrial production rose 6.2% year-on-year in November versus +5.0% expected and 4.7% previously It was the fastest year-on-year growth in five months. Retail sales rose 8.0% year-on-year in, compared with an expected increase by 7.6%. Japanese stocks were lower after the Bank of Japan kept monetary policy steady.

US equities

US stocks hit record closing highs again on Friday. The Dow Jones Industrial Average rose 0.28%, the S&P 500 gained 0.49%, and the Nasdaq Composite added 0.42%. The S&P 500 rose for a fourth straight week, adding 1.7% - its biggest weekly gain since early September. Concerns over the escalation in the trade war continued to abate after Trump claimed progress on issues from trade to North Korea and Hong Kong after speaking with Chinese President Xi Jinping. Meanwhile, the data showed that US consumer spending rose and investors continued to be optimistic about trade developments.

Currencies

US dollar gained against the majors last week, in part due to some positive economic updates out of the United States, with the economic calendar was pretty busy. In particular, the Empire State manufacturing survey held steady at 3.5, US business activity growth accelerates to a five-month high at 52.2. according to the data from NAHB, builder confidence in the market for newly-built single-family homes increased five points to 76 this month. US housing starts rose more than expected, with permits came in at a 12.5-year high. Manufacturing production rose more than expected in November while the number of job openings edged up to 7.3 million, by 235,000, according to JOLTS. Philadelphia Fed manufacturing index declined in December to lowest reading in six months, current account deficit narrowed slightly in 3Q, existing home sales dropped 1.7% in November, versus a 0.4% drop expected. The Conference Board leading economic index for the U.S. was unchanged in November. US third-quarter economic growth unrevised at 2.1% while the PCE price index increased 0.2 percent. Excluding food and energy, the price index increased 0.1 percent. Personal income increased +0.5% in November and personal consumption expenditures increased +0.4%. UMich consumer sentiment rose in December to highest level in seven months.

As for the Federal Reserve, the central bank officials said they saw little need to change interest rates anytime soon and the country’s economy was on good path. Fed’s Williams said repo operations were working well and should stay in place as long as needed while Fed’s Evans noted he is comfortable with one rate hike in 2021, 2022. Against this backdrop, EURUSD slipped from the 1.1175 area, down to weekly lows around 1.1065 and finished close to these lows. The pair failed to stay above the 1.11 handle as the possibility of a hard Brexit rose substantially and sent the cable lower as well. GBPUSD dipped below the 1.30 handle amid an aggressive sell-off o Brexit concerns. USDJPY meanwhile saw weekly gains but once again failed to confirm a break above the 100-SMA in the weekly charts at 109.60.

Commodities

Despite a bearish correction on Friday, Brent crude ended the week on a positive footing, adding 1.4%. Since the start of the year, prices gained nearly 23%. For most part of the week, futures extended gains amid the lingering optimism over the trade deal and the global economy, which in turn raised hopes of a brighter outlook for global oil demand. On Wednesday, the EIA data showed a smaller-than-anticipated decline in U.S. crude stocks which decreased by 1.085 million barrels from the previous week, less than the market expected draw of 1.288 million barrels. Still, the results were much more positive than the API’s assessment, which gave a boost to the market. Brent fell on Friday after Baker Hughes data pointed to a big weekly rise in the number of active U.S. drilling rigs. The number of rigs in the United States increased by 14 to 813 for the week ending December 20. Prices extended the decline this Monday and reached the $65 level as a result of profit taking. Now, the futures need to hold above this level in order to avoid a more aggressive decline in the short term.