The reports were inconclusive about the rapaciousness of the U.S. consumer on Black Friday; it really depended on which retail analytics firm you listened to. The general feeling though was that footfall and online held their own, but didn’t reach the frenzied levels of retail anarchy of years past.
That hasn’t deterred the marketers across the globe though, anxious to make sure we continue buying stuff that we probably don’t really need. Today is Cyber Monday – although I would prefer it was still Sunday – which is a Western Hemisphere version of Singles Day from what I can tell. Instead of falling down the sales funnel by physically going to a shop, elbowing aside fellow bargain hunters, and buying something on sale, today you get to overwhelm servers by clicking for that bargain online instead.
With so much riding on the U.S. consumer as the consumer of last resort, the combined data from Friday and today’s shopping days will be monitored closely. With so much good news baked into global asset markets that a trade deal will get across the line in some shape or form shortly, less than spectacular sales data could weigh on markets this week.
Markets should probably not expect too much help from China either. On Saturday official China Manufacturing PMI data rebounded to 50.2, well above the 49.5 expected. The week-long holiday in October may have skewed the figures though. That was the sum total of the good news though with South Korean Balance of Trade, released Sunday, falling to $3.35 billion. Exports tanked 14.30% YoY, and imports fell an equally unimpressive 13.0% YoY—both much worse than expected, with the effects of the U.S.-China trade war still plain to see.
The clouds continued to blow in from China on Sunday. China’s Global Times newspaper reported that China’s baseline condition for an interim trade deal is a total roll-back of existing U.S. tariffs, and cancellation of the upcoming December 15th planned tariffs as well. It is hard to see the U.S. swallowing a very bitter trade pill like that; it would, in effect, remove all of the U.S.’s leverage in the far more difficult comprehensive trade negotiations to come. It is now becoming more apparent why the talks have dragged on so long.
The Peoples Bank Of China Governor (PBOC), Yi Gang, added to the gloom yesterday, publishing an article in China’s Qiushi magazine saying China would maintain standard monetary policy and not engage in quantitative easing. He expounded the PBOC’s intent that they would maintain a positive yield curve to protect Chinese savers. The Governor said he intended to keep the yuan stable, not engage in competitive devaluations, all while dissing zero interest rate policies for causing distortions and asset price bubbles, as well as delaying necessary economic adjustments. A man after my own heart.
Case in point is the news that Australian house prices have surged the most in 16 years, according to CoreLogic this weekend. That is despite Australia’s non-mining domestic economy stuck at the bottom of the billabong, despite low-interest rates. The RBA probably won’t cut tomorrow, but they are probably not far away although the housing market will provide a background migraine for policy setters.
Circling back to the PBOC, the Governor observed that the world economy is in a downturn, and will stay that way for a long time. This last statement is likely to send shivers through Asia today, coming after a negative Friday close on Wall Street, and the return of violent protests in Hong Kong over the weekend.
One bright spot is the combined Markit Manufacturing PMI data from across Asia, released this morning. Indonesia, the Philippines, Malaysia, Vietnam, South Korea and the Jibun Bank Japan PMI’s have all outperformed, with only Thailand lagging. The Caixin China Manufacturing PMI rose slightly to 51.8 from 51.7, so still expansionary.
The PMI data appears to have lifted equity markets in early trading, with Japan and Australia in the green and New Zealand hitting all-time highs. With a new week on us and the holiday over in the U.S., the theme seems to be pile back into global trade recovery FOMO trade. Clearly, a lot of people haven’t read the news from China this weekend. It appears to be just another manic Monday.
Equities
Wall Street finished in the red on Friday as holiday-thinned markets reduced long positioning ahead of the weekend. The S&P 500 fell 0.40%, the NASDAQ fell 0.46%, and the Dow Jones fell 0.40%.
China’s weekend PMI, and this morning’s Pan-Asia PMI out-performance appear to have green-lighted investors to pile back into equities. The Nikkei is 1.0% higher, the KOSPI 0.46% higher, the ASX 0.47% higher and the NZX up 0.36% to record highs.
One note of caution though is that Hong Kong and the Mainland indices ignored the rest of Asia on Friday and fell, despite no apparent reason for them doing so. The news from China over the weekend on trade and the PBOC Governor’s world economic outlook, as well as further Hong Kong protests, may not see the Mainland share the rest of Asia’s early enthusiasm.
Currencies
The FX market continues to slumber in an almost catatonic state with EUR/USD and USD/JPY unchanged at 1.1010 and 109.40 respectively. The U.S. dollar finished broadly 1.50/2.0% higher against most of the majors for November, supported by interest rate differentials as the rest of the G-10 races to the bottom. Only GBP held its ground, supported by a probable strong Conservative election win and thus, Brexit certainty.
With volatility tanking everywhere except among LATAM currencies, it is clear that currency markets will not be awoken, until we see a concrete resolution to the U.S.-China trade negotiations.
Major currencies are unmoved this morning in Asia with a quiet day predicted.
Oil
Oil collapsed on Friday with Brent crude falling 4.0% to $61.70 a barrel and WTI spot, slumping a massive 4.84% to $55.20 a barrel. One suspects a combination of holiday thinned liquidity, extended speculative long positioning, risk reduction ahead of the weekend and more than a few stop losses, combined in a perfect storm to send oil lower.
Longer-term supports at $60.00/30 for Brent and $54.70 for WTI remain intact, and in fact, Asia has seen a strong rally so far today. Brent has risen 1.0% to $62.30 a barrel, and WTI has risen 1.30% to $56.20 a barrel. The robust PMI data from Asia and a lack of headlines from the trade negotiations over the weekend sees short-term long positioning return to the oil trade as equities move higher.
Whether this lasts, remains to be seen, as OPEC+ meets this week and is sure to provide some fireworks, with a production cut extension already priced in.
Gold
Gold rose 0.55% to $1,464.00 an ounce on weekend risk hedging on Friday as equities and energy corrected lower. With both enjoying a positive start to trading this morning, gold has given back some of those gains, falling 0.25% to $1,459.00 an ounce.
Gold’s critical support remains at $1,445.00 an ounce with strong resistance at $1,480.00 an ounce. Until either level breaks, intra-day moves will stay at the mercy of trade sentiment and its effects on other asset classes.