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25.11.2019

Weekly market overview: Mixed signals from the US-China trade front confuse investors

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Asian markets were mostly lower during the week, Hong Kong protests weighed

Mixed signals from the US-China trade front confuse investors

  • Asian markets were mostly lower during the week, Hong Kong protests weighed
  • US equities registered another weekly rally and all-time highs
  • Trump threatens more tariffs if talks fail to produce an interim deal
  • Larry Kudlow signals that Washington is getting close to a trade deal with Beijing
  • US dollar traded lower against major counterparts amid a mixed risk sentiment
  • Oil prices rose for a second week in a row but momentum limited

Asian equities

Asian markets were trading mostly lower last week amid mixed signals from the US-China trade front. In Mid-week, stocks declined after the news that Donald Trump threatened more tariff hikes on Chinese imports if talks fail to produce an interim agreement. At the same time, the US President said that agreement on the phase one deal could happen soon. Additionally, Hong Kong shares were hurt by an escalation in violence anti-government protests.

On the data front, retail sales in China grew 7.2% in October on the annual basis, below the 7.9% increase expected by markets and analysts. Industrial output grew 4.7%, which was also weaker than anticipated, while property investment growth in the first 10 months of the 2019 slowed year-on-year. Earlier, China’s official PMI showed activity in the factory sector remained in red for a sixth month in a row.

At that, the regional markets were mostly higher on Friday, after White House economic adviser Larry Kudlow said that Washington is getting close to a trade deal with Beijing. Meanwhile, Chinese Ministry of Commerce spokesman said that both countries were holding deep discussions about a “phase one” deal. At the same time, he highlighted that the rolling back of some tariffs is key to reaching an agreement.

As a result, the Nikkei 225 in Japan rose 0.7%, South Korea’s Kospi closed 1.07% higher, Hong Kong’s Hang Seng index closed largely flat at 26,326.66. Meanwhile, the S&P/ASX 200 in Australia gained 0.87%. The Shanghai composite was 0.64% lower. Overall, the MSCI Asia ex-Japan index was 0.56% higher on Friday.


US equities

US stocks extended the rally for a fifth week in a row amid prospect of a US-China trade deal and fading recession fears. Against this backdrop, the Dow Jones Industrial Average crossed 28000 for the first time, with all major US stock indexes closed at record highs on Friday after Larry Kudlow said China and the US were getting close to reaching a trade deal. Also, tech giants Microsoft and Google-parent Alphabet both registered record highs late last week.

In particular, the S&P 500 gained 0.77%, to 3,120.46, the Dow Jones Industrial Average climbed 0.8%, to 28,004.89, while the Nasdaq Composite rose 0.73%, to 8,540.83. On a weekly basis, the Dow notched its fourth week of consecutive gains, rising 1.2%. The S&P 500 advanced 0.9%, posting its sixth straight weekly gain and the Nasdaq rose for a seventh consecutive week, advancing 0.8%.

Currencies

The greenback declined against major currencies on a weekly basis. The USD index was down for the fourth consecutive session on Friday, coming under renewed selling pressure. The dollar was lower along with US Treasury yields despite fairly strong US retain sales data. The official report showed the retail sales expanded at a monthly 0.3% after an unrevised drop by 0.3% in September and versus an expected rise by 0.2%. however, sales excluding autos and gasoline rose just 0.1%, with the pace of sales over the past year slowed to 3.1% from 4.1%, marking a five-month low.

In testimony before Congress, the Federal Reserve governor Jerome Powell painted a fairly optimistic picture of the country’s economy. At the same time, he warned that threats to the outlook persisted. The Powell’s speech failed to inspire dollar bulls, and the sentiment towards the American currency remained mostly negative. As such, EURUSD, which dipped below the 1.10 handle earlier, managed to stage a modest recovery and reached 1.1055. still, the pair failed to recoup losses nursed during the previous week and remains vulnerable to further decline. USDJPY finished on the defensive but off lows registered around 108.20 earlier, due to a rise on the last trading day of the week. In general, the pair was trending lower amid the prevailing risk-off sentiment in the global financial markets.


Commodities

Brent crude finished higher on the week and managed to close above the $63 handle despite the US Energy Information Administration report showed that domestic crude inventories rose a third straight week, gasoline supplies registered their first climb in seven weeks and production reached fresh all-time highs. The U.S. crude supplies rose by 2.2 million barrels while production rose by 200,000 barrels per day, to 12.8 million barrels a day for the week ended November 8.

Meanwhile, the Organization of the Petroleum Exporting Countries trimmed its forecast for U.S. crude output growth next year by 33,000 barrels a day to 1.5 million barrels a day. In its monthly report, the organization left its forecast for 2019 and 2020 global oil demand growth unchanged from its previous estimate. Brent registered late-September highs on Friday around $63.60 after previous attempts to get back below the 100-DMA around $61.30. In general, as long as the futures stay above the $60 handle, the downside risks look limited, with risk sentiment in the financial markets remaining the key driver for Brent.