The European market (Stoxx-600) closed around 338.98 Monday, plunged by almost -1.88% on the concern of slowing global economy, Brexit mess and US-China cold war jitters; Dow also stumbled over 500 points led by Apple (NASDAQ:AAPL) and Banks. Europe was also dragged by lingering political protests (“yellow vests”) in France over the weekend, which is spreading like a fire all over the Eurozone and fast turning into a Eurosceptic movement. Overall, European political jitters from the UK to Italy, France and even in Germany are affecting the risk-on sentiment.
Also, an unexpected resignation of India’s central bank governor Patel over political independence issue with the government may have affected the overall risk-on sentiment as it’s indicating political pressure amid central bank QT from the US to India.
Energies also dragged as oil slips on global growth and oversupply concerns despite OPEC+ cut of 1.2 mbpd. The risk-on sentiment was affected by a terrible Q3 GDP contraction from Japan at -2.5% from prior -1.2%, much higher than the expectations of -1.9% contractions on yearly basis.
China's weekend trade data was also soft and fueled renewed worries about the Chinese economy, the world’s “growth engine”. China's November exports growth tumbled to +5.4% from prior +15.5%, weaker than expectations of +10.0%. The November imports growth also plunged to +3.0% from prior growth of +20.0%, weaker than expectations of +14.5%. Overall China November trade surplus was at $44.74B from prior 34.02B, higher than expectations of 34.00B.
China's November CPI eased to +2.2% from Oct's +2.5% and was weaker than expectations of +2.4%. China's November PPI eased to +2.7% from October’s +3.3%, right on expectations. Overall, subdued export as-well-as import data and PPI indicating a slowing Chinese economic momentum, although it may be one-off as in October there were front runs to avoid Trump tariffs ahead of the holiday/shopping season. On the positive side, China's November reserves rose to $3.061T from October’s $3.053T, which was larger than market expectations for a decline to $3.044T.
On Monday, Apple dragged the market further after an adverse ruling in a Chinese court against the iPhone maker, in which Apple was hit with iPhone sales ban for some selected old models in China after a ruling that it had infringed on patents held by Qualcomm (NASDAQ:QCOM). As per the report, a Chinese court ordered Apple to stop selling older iPhone models in the country after finding the smartphone giant infringed on two patents held by Qualcomm.
In any way, as per the report, the 30thNov decision by a Chinese intellectual-property court is the first in the world’s largest smartphone market that seeks to curtail iPhone sales. The preliminary injunction is the latest turn in a long-running legal dispute between Apple and Qualcomm. The Chinese court has also asked Apple to stop selling older iPhone models in the country.
Dow future plunged early Monday, Asian session by over -250 points on hawkish anti-China trade comments from the USTR Lighthizer. He said on the weekend that the 90-days are a “hard deadline” for China trade deal. The current USTR Lighthizer, a known China hawk said: “The March 1 is a hard deadline as far as I am concerned; new tariffs will be imposed otherwise. When I talk to the president of the United States, he is not talking about going beyond March and thus March 1 is the deadline. The way this is set up is that at the end of 90-days, these tariffs will be raised”.
Lighthizer also clarified: “The US needs agricultural sales and manufacturing sales to China. But at the same time, we need structural changes on this fundamental issue of non-economic technology transfer. And, Americans can be reassured that if there is a deal that can be made that will assure the protection of the US technology…and get additional market access…the president wants us to do it and if not, we will have tariffs”.
The US-China trade/cold war tensions also flared up by another report late Friday the that the US readies charges against alleged Chinese hackers for attacks on technology service providers and the Chinese hacker charges could come next week, in latest US action against Beijing.
The market was also waiting for the bail hearing of the Huawei CFO arrested in Canada on 1st December. As per the report, the Canadian prosecutor said the Huawei CFO Meng was arrested for “fraud” and the US warrant was issued in August. Meng was arrested in Vancouver in transit from Mexico to Hong Kong. The crown lawyer said the US accuses a Huawei unit (Skycom) of doing business in Iran. The market is now anticipating no-bail for Meng and she will be eventually extradited to the US and face prosecution, which will be negative for the risk-on trade. The charges are linked to skirting US sanctions on Iran and Meng has been charged with conspiracy to defraud multiple banks.
As per the weekend report, the final verdict on the bail hearing of Meng was further scheduled to Monday, but even if Meng is denied bail by the Canadian court, the actual extradition process will take at least 2-3 months and in the meantime, Meng has the legal opportunity to appeal against her bail and extradition to higher Canadian courts and ultimately, the Canadian government (justice Minister) will decide whether Canada will extradite Meng.
So it would be a long drawn process and the end result in could be also that Meng would not be extradited by Canada to the US considering their “deep bonded” relationship with China and the US will also not pursue so much for the extradition for Meng for the “larger national interest” of Trade truce with China.
For China, it will be another opportunity to buy more time until the next US Presidential election to continue trade talks without any meaningful result. Meng will also be eventually granted bail in return of Chinese embassy security (assurances), while she would continue to fight her extradition battle to the US from China. The whole incident of Huawei CFO Meng arrest at the Vancouver transit airport may be also a “Chinese trap” for the US; otherwise, Canada will not risk its diplomatic relationship with China in this US extradition request, in which it has nothing to gain.
So in effect, US-China trade discussion will go on but may not reach a conclusive agreement in the next 90-days for this Huawei CFO Extradition issue, but Trump will extend the temporary truce for another 90/180-days as he can’t afford 25% tax on Chinese goods for the US consumers. And in between, we may see more US-China trade/cold war/truce headlines, which would keep the market volatile.
Banks and financials were also under stress on the fear of hard Brexit domino effect, falling bond yields, and increasing inversion, although the spread between 10s and 2s improved to 15 bps from a low of 9 bps a few days ago.
The SPX-500 is currently trading around 2626.88, slumped by -0.35% and well-off the session low of 2683.75 on a report that Apple has filed an appeal against Qualcomm order of iPhone sales order ban on some models. Apple said it did not violate these patents and that the ban goes beyond the scope of the injunction itself.
US 500
The SPX-500 is currently trading around 2626.88, slumped by -0.35% and well-off the session low of 2683.75 on a report that Apple has filed an appeal against Qualcomm order of iPhone sales order ban on some models. Apple said it did not violate these patents and that the ban goes beyond the scope of the injunction itself.
Apple said in a statement on Monday: "Qualcomm's effort to ban our products is another desperate move by a company whose illegal practices are under investigation by regulators around the world. All iPhone models remain available for our customers in China. Qualcomm is asserting three patents they had never raised before, including one which has already been invalidated. We will pursue all our legal options through the courts”. Apple claimed the patents in question do not cover the company's latest operating system that comes installed on all new iPhones.
Subsequently, Apple recovered from a session low of 163.73 and made a high of 169.84 and Dow also recovered from a by almost 450 points, helped by a sharp recovery in techs and consumer durables. The risk-on mood was further improved on hopes of Huawei CFO’ bail after her lawyer assured the Canadian court that the CFO Meng would pay for her own surety (security) and is also ready to pledge her expensive Vancouver mansion to the court in exchange of her bail. Earlier, China also summoned the US Ambassador over the Meng issue and warned about “grave and unspecified consequences” to both the US and Canada.
Facebook (NASDAQ:FB)
Facebook is another tech stock, helping the overall market on its buyback plan of $9B despite lingering regulatory worries over its data privacy issues. Facebook announced its latest buyback after a 20% plunge in its stock price and is in addition to an earlier buyback of $15B.
Facebook (FB) was also boosted by analysts’ upgrade and appeal of bargain hunting. FB is now trading around 140.83, jumped by almost +2.57% and so far made a session low-high of 139.01-142.25.
UK 100
The risk-on sentiment was also under stress on Brexit mess as the British Prime Minister Theresa May delayed a key parliamentary vote on her Brexit plan, sensing her big defeat and is now planning to fly Brussels for more negotiation (legally binding) on the open-ended Backstops of backstops, so that the UK would not be trapped into the EU customs union indefinitely. Although it’s still not clear whether the EU will re-enter further Brexit negotiations, Theresa May is now planning for the 2nd attempt in the Parliamentary vote in mid-January.
The May strategy is not so much unexpected as it was rumored in the market a few weeks back to keep the pressure on the EU to budge; otherwise, the UK will go for a no-deal Hard Brexit, which is also negative for the overall EU political image and European banks. A hard Brexit would be also negative for US-based banks on its spillover effect.
There will be another Brexit angle, if the EU does not blink over its backstops mystery and in that case, the UK may choose no-Brexit at all after calling a 2nd referendum and a fresh general election. The EU and also Theresa May “may prefer” this no-Brexit option as a last resort to avoid Britain’s exit from the EU on a “hard Brexit” fear mongering. But this strategy of no-Brexit also looks tough now as the current political and general public mood is clearly for a clean Brexit even for the erstwhile anti-Brexiter after the hardball treatment by the EU.
Thus for the time being a soft Brexit with acceptable legally binding backstops terms would be good for both the UK and the EU, although the actual thorny Irish border issue far from any resolution.
Amid all these never-ending Brexit sagas, the UK’s FTSE-100 plunged by almost -0.83% (-56.57) and closed around 6721.54 after making a session low-high of 6719.17-6815.84, despite a plunge in GBPUSD and GBPEUR, positive for the export-heavy UK stock market.
GBPUSD is currently trading around 1.2555, crumbled by almost -1.55% and so far it made a session low-high of 1.2508-1.2758 in a day of volatile trading amid hopes and hypes of Brexit.
Gold
In commodities, Gold is currently trading around 1248.10, slumped by -0.35% on higher US dollar index (DXY), which soared by almost +0.70% to a high of 97.22 amid a plunge in GBP, EUR on European political turmoil and a slump in CAD as oil slips. Earlier Gold made a 5-month high of 1256.30 on safe-haven appeal as stocks plunged.