Rugby aside, the weekend was relatively quiet on the news front which may have come as a relief after a quite frenetic previous week. Trading is likely to be subdued somewhat in Asia today with Japan closed for its Culture Day holiday.
Friday's Nonfarm Payrolls surprised to the upside, posting a gain of 126,000 jobs with the previous month revised upwards to 180,000. The U.S. ISM Manufacturing PMI climbed to 48.3 from 47.8 previously. It is still a contractionary print, but on a day when the market was turning lead into gold, they took the win. Following on from an improved Caixin China PMI number, the street pushed the S&P 500 and NASDAQ to record highs to finish the week.
That positive sentiment should be reinforced in Asia today after U.S. Commerce Secretary Wilbur Ross said yesterday, that he was optimistic about getting phase one of the U.S.-China trade deal over the line this month. I’m struggling to see China’s President Xi acceding to President Trump’s suggestion that they travel to Iowa for a signing ceremony though.
After last week's data avalanche, this week brings a more calm look to the calendar, which unfortunately means we will be moving back to intra-day headline ping pong. The U.S. has passed peak earnings session, but equities will take an interest in the now announced Saudi Aramco IPO, due to launch in early December. Hoped for pricing of a mind-boggling $2 trillion looks like an IPO too far with guestimates settling around the $1.5 trillion marks. Only one to two per cent will be floated though, and only on the Riyad exchange with the whole process looking like the Saudi’s are going through with it with gritted teeth.
We have the RBA and BOE releasing interest rate decisions tomorrow and Thursday respectively. The RBA will likely stay on hold at 0.75%. This morning’s poor Retail Sales print at 0.20% and a drop in ANZ Job Advertisements of -1.0% will give them pause for thought. Still, aside from confirming the anaemic nature of Australia’s non-resource economy, with rates at record lows, they will probably hold fast for now.
With a UK election pending on December 12th, and of course, Brexit sometime in January theoretically, the BOE will also remain on hold at 0.75%. The BOE however, may remove its tightening bias after sterling’s 5.0% rise in October has delivered an effective tightening already to a deficit addicted Britain.
Tomorrow’s U.S. Balance of Trade and Non-Manufacturing PMI, along with China’s Balance of Payments, due Friday, probably provide the entertainment highlights for the week. I would expect the focus to now return to progress on the trade talks, with headlines from each side driving short-term market moves.
Equities
U.S. data outperformance and trade talk optimism combined to push U.S. stock markets higher on Friday with, with the S&P 500 and NASDAQ closing at record highs. The S&P 500 leapt 0.97%, the NASDAQ jumped 1.13%, and the Dow Jones rose 1.11%.
Wilbur Ross’s positive trade comments yesterday have given Asia the green light to follow Wall Street higher despite Japan being on holiday. Downunder, the S&P/ASX 200 and NZX 50 are over 0.50% higher. The KOSPI and Hang Seng have leapt 1.25% higher in early trade, and we would expect a similar performance from the China mainland exchanges.
Sentiment will be the key driver of price action this week, and while the world looks rosy today, we are only one headline from an abrupt handbrake turn in a cloud of smoking rubber. Investors should enjoy the moment but should also stay nimble as well or have deep pockets for potentially sharp pullbacks.
Currencies
The dollar was buffeted by U.S. data and trade comments on Friday but ended only slightly lower as the week’s dust settled. The dollar index fell 0.15% to 97.20, which belied the intra-day volatility. In other words, it was a typical Nonfarm Payrolls Friday; lots of noise and more than a few tears; but very little change once the dust has settled.
The USD/CNY daily mid-point has been set at 7.0382, almost unchanged from Friday’s, highlighting the low net change in the dollar basket on Friday. The dollar is virtually unchanged against the majors this morning with FX volumes muted by the Japan holiday today.
Despite this, regional currencies should trade positively in today’s session, buoyed by the positive noises coming from the U.S.-China trade talks, which is by far the most significant macro-economic event risk for the region in 2019.
Oil
Energy markets got a double sugar rush from Friday’s U.S. data and trade comments. The session of hyperactivity must have looked like the dreaded children’s party after the cakes, and soft drinks have been consumed. Brent crude rose 3.60% to $62.00 a barrel, and WTI rose 3.80% to $56.10, with both contracts racing to the top of their month-long up-channels.
Some early profit-taking, has unsurprisingly, been seen in Asia with both Brent and WTI 0.25% lower. Again I will sound a note of caution, Friday’s mega-rally was built on a combination of not as bad as feared data and optimism on a trade deal that really, only keeps the lights on. It does not increase the brightness of the world economy. With plenty of oil going around for everyone from everywhere, oil, in particular, will be more susceptible to headline bombs this week. Be careful out there.
Gold
Gold confounded the critics, including the author, by refusing to roll over and sink after the waves of positive news on Friday, that should have holed it below the waterline. After falling initially on the Nonfarm Payrolls upside surprise, gold made bake all its losses to finish almost unchanged, up 0.15% at $1514.50 an ounce.
Friday’s stubbornness by gold leaves it poised just below its critical $1520.00 an ounce technical resistance, a region it has tested and failed at multiple times over the last five weeks. Gold may have benefited from some pre-weekend risk hedging on Friday, but its performance implies that a break above $1520.00 could see stop-loss buyers appearing.
I will not yet though get excited about a potential breakout as gold has over the last month, looked very heavy at its lows near $1475.00 and very strong near its highs at $1520.00, only to disappointment. Gold’s refusal to retreat from these levels though, suggests that a reasonable degree of scepticism remains out there about both the U.S.-China trade disagreement resolving, and the defiance of the U.S. economy to the world economic slowdown.