Key Events
On Friday, the final trading day of 2017, US stocks fell hard. The S&P 500 Index and NASDAQ Composite each slipped back to where they were on December 15, while the Dow Jones Industrial Average and the Russell 2000 tumbled to where they'd been on December 18.
Friday’s decline was led by Financials, down 0.71 percent; the biggest gainer was Real Estate, up a paltry 0.09 percent, followed by Utilities, which came in flat. On a weekly basis the same sectors led, with Real Estate up 1.6 percent and Utilities up 0.44 percent, respectively. Ironically, Technology, which finished the year well ahead of other sectors, up 32.34% in 2017, was the biggest weekly loser during the final week of the year, falling 0.91 percent.
Global Financial Affairs
This morning, the first trading day of 2018 opened on strength, with a trifecta of fundamentals buoying Asian markets: (1) increased sales by China's leading real estate developers (2) a stronger than expected Caixin Manufacturing PMI from the world’s largest exporter and (3) calmer geopolitical waters after North Korea offered an olive branch of sorts to South Korea, with Kim Jong Un saying he was "open to dialogue" with Seoul.
Developers outperformed on Hong Kong’s Hang Seng, boosted by sales, which in turn pushed property shares up to their highest level in two-and-a-half years. The MSCI Asia Pacific Index climbed to a record. What is most impressive about this surprise real estate-related data is that it happened despite the Chinese government's ongoing tightening of industrial regulations, which were expected to cool the country's overheated property market.
This morning's Caixin Manufacturing PMI release showed a December reading of 51.5, better than the expected 50.7, which was also higher than the previous month’s 50.8. This data reflects expansion not just in China's own economy but economic health worldwide since it's global demand that's supporting the better-than-expected Chinese manufacturing sector.
Markets in Tokyo are closed till Thursday for the Exchange Holiday; in New Zealand for New Year's Day until Wednesday.
The Stoxx Europe 600 Index slumped, pulled lower by automakers which extended their decline since before the holidays began. They failed to stay the course this morning after a generally strong start for stocks in the new year.
A weak dollar, which is likely to slip further, is supporting commodities and by extension the economic growth of their biggest global user, China, the steam engine of global economic expansion. An additional release in Asia this morning which supports the global growth story is Taiwan's Manufacturing PMI which came in at its highest point since at least 2015.
The dollar extended its decline, falling for five out of the last six days. The reserve currency is struggling below the 92.00 psychological round number, trading at the very bottom of its range.
A down-sloping neckline reveals weakness, as there isn’t enough demand to support the price of the former, October 13 low. However, with a mere 0.43 percent penetration, beware of a bear-trap. An aggressive, minimum 1 percent filter would be achieved should the price decline to 91.38.
Gold, the flip side of the dollar image, climbed for a 12th day, reaching beyond $1,310, its highest level since September.
Oil, boosted by the weaker dollar, resumed its advance toward $61 but was pushed back down below $60.50 and below the $60.73 Thursday high, as US drillers paused, leaving the rig count unchanged at 747 for a second week. Should the price of the commodity close at this or a lower level, it will have produced a bearish shooting star.
A shooting star (on a close) would suggest a return-move toward the symmetrical triangle before actualizing the $62 target. Here's our forecast and trading strategies for how to trade oil into the new year.
Bitcoin remains adrift at the $13,500 level, unable to push much higher, after it fell through the hoped for barrier of a $15,000 bottom.
Cryptocurrency markets appear to have shifted focus away from Bitcoin and toward Ripple, which closed out 2017 up 36,00% for the year, on a year-end surge that took it from $0.419 in mid-December to a high of $2.399 on December 30.
Up Ahead
- Eurozone and US Manufacturing PMIs are due Tuesday.
- MiFID II, the biggest change to European investment industry rules in a decade, takes effect Wednesday.
- The FOMC's December meeting minutes are also expected on Wednesday.
- US Nonfarm Payrolls for December are released on Friday.
Market Moves
Stocks
- The Stoxx Europe 600 Index fell 0.1 percent as of 8:14 London time (3:14 EST), the lowest in almost two weeks.
- The UK's FTSE 100 decreased 0.1 percent.
- Germany’s DAX sank 0.5 percent to the lowest in more than three months.
- Japan’s Nikkei 225 dipped 0.1 percent to the lowest in more than two weeks.
- The MSCI Asia Pacific Index jumped 0.6 percent to the highest on record.
- The MSCI Emerging Markets Index increased 1 percent to the highest in more than six years.
- S&P 500 Futures gained 0.1 percent to 2,679.50.
Currencies
- The Dollar Index fell 0.33 percent to the lowest since September 22.
- The euro gained 0.2 percent to $1.2035, the strongest in more than 16 weeks.
- The British pound climbed 0.3 percent to $1.3537, the strongest in almost 15 weeks.
- The Japanese yen increased less than 0.05 percent to 112.60 per dollar, the strongest in more than two weeks.
Bonds
- The yield on 10-year Treasuries gained two basis points to 2.43 percent.
- Germany’s 10-year yield climbed three basis points to 0.46 percent, the highest in almost 10 weeks.
- Britain’s 10-year yield advanced three basis points to 1.217 percent, the highest in a week.
- Japan’s 10-year yield was unchanged at 0.048 percent, the lowest in more than a week.
Commodities
- West Texas Intermediate crude gained 0.37 percent, paring an earlier advance of 0.83 percent, to $60.45 a barrel.
- Gold advanced 0.5 percent to $1,309.16 an ounce, the highest in 14 weeks.
- Copper dipped 0.2 percent to $3.30 a pound.