The US economy looks resilient despite never-ending trade war concerns, President Trump’s impeachment process, and softer economic data. Investors take comfort that the Fed is on hold, the US consumer is strong, and we have yet to see any major concerns come out of the credit markets.
The next major move with the US dollar could be more dependant if we see a global rebound that has the majority of its major trading partners be poised for a strong rebound in 2020. With optimism growing that much of Europe could be leaving negative rates, we could see the dollar continue to show further signs of broader weakness.
Market Awaits US-China Trade Deal Signing
Much of the attention will fall on whether we see the phase-one trade deal finalized over the beginning of January.
If we see any signs of Chinese compliance over agricultural purchases or hints over the progress of talks improving over a phase-two deal, we could see further upside with global equities.
Oil
Oil is having a strong end to 2019 and on Thursday extended its winning run to six days. Marginal gains are being squeezed out in early trade which may suggest the run is about to come to an end, but broadly speaking, there’s no lack of momentum in the oil rally yet. An OPEC+ deal, US-China trade deal and maybe even an improved global outlook have created quite the bullish case for oil recently and it seems traders think there’s more room to run.
Gold
It’s becoming more and more difficult to write about gold in any kind of interesting way. The yellow metal is coasting its way into the new year and nothing seems to be wobbling it. We’ve had a trade deal, an impeachment and new records in the stock markets and yet gold just shrugs it off. A break above $1,480 would certainly make things more interesting but I’m not optimistic the way things are going.
UK Election/Brexit
The Conservative majority in last week’s general election has delivered its first result, with Parliament backing Boris Johnson’s withdrawal bill including the amendment to make it illegal to extend the transition period beyond the end of 2020. While Parliament will be busy between now and the end of January – with debates taking place on the bill on 7,8 and 9 January – from a markets perspective, the hard work is done and the cloud of uncertainty, lifted. It will soon be on to the trade deal negotiations.
US Politics
Markets should not see much of a reaction with the President’s impeachment saga as it is unlikely for the Democrats to get two-thirds of the vote in the Senate to convict Trump. The focus with US politics will likely fall on whether we see a progressive candidate, or a market friendly contender win the Democratic nomination. The US economy remains in a good place and as long as markets are still firmly pricing in another term for President Trump or possibly a Biden, Buttigieg, or Bloomberg victory, the bullish outlook for US stocks will remain in place. Bernie Sanders and Elizabeth Warren remain the biggest risks to the outlook, however a Republican-led Senate would thwart any radical changes.
Hong Kong
Protests have been less-violent since the huge win for pro-democracy candidates but Carrie Lam’s visit to Beijing this week, where she received unanimous support from Chinese authorities, could prompt a more aggressive tone by demonstrators this weekend.
There seems to be no doubt the economy is in recession in 2019 and forecasts suggest no change until mid-2020. The unemployment rate ticked higher in November and anecdotal evidence suggests more to come. The US-China trade truce might offer a modicum of support.
As always, there is the risk that protests turn violent again, which would be negative for the HK33 index. USD/HKD is still in the upper half of the trading band.
China
Nothing much to report now that the Phase 1 trade deal is agreed in principle, barring any unforeseen setbacks. There are no more data points until the December PMIs are released on New Years Eve.
Any back-tracking on the Phase 1 details would be negative for risk, hurt the CN50 index and boost USD/CNH.
Australia
This week’s jobs report has set the stage for early-2020. A strong report has pushed any thoughts of the next RBA cut out to Q2 2020, according to Bloomberg calculations.
Any change in the status of trade negotiations, or a severe downward bias to AU data, would be detrimental to local equities and the AUD, positive for bonds.
Japan
BOJ minutes from Thursday’s meeting are due on Christmas Eve, and will be the only excitement on the calendar for next week