China data leads to a risk-on
In the broader market, now that the Phase 1 US-China trade deal has been agreed in principle, markets have traded positively during this morning’s Asian session. US indices have advanced between 0.05% and 0.29%, with the US30 index the under-performer while the Australia200 index was top of the league with gains of over 1%.
The positive vibes were partly driven by China’s retail sales and production data for November, which both came in above forecast. Sales grew 8.0% y/y, better than the 7.6% expected and the fastest growth rate in five months. Industrial production rose 6.2% y/y, the fastest pace since June, and well above economists’ expectations of 5.0%.
On the currency front, in the usual fashion, the Australian dollar was firmer, the Japanese yen weaker, as investors embraced risk. AUD/USD rose 0.05% to 0.6878 while USD/JPY gained 0.03% to 109.38.
AUD/USD tested the 200-day moving average at 0.6911 on Friday but failed to close above it. That moving average in now at 0.6910 and has capped prices on a closing basis since March 2018.
AUD/USD Daily Chart
Markets like a clearer Brexit outlook
The pound looks set to extend last Friday’s gains to a second day after investors reviewed the implications of the Conservative Party’s resounding win at Thursday’s election. One conclusion seems to be that an orderly exit from Europe may actually happen on January 31, which is probably the best future outlook we have seen in months. Indeed, PM Johnson has said he wants a parliamentary vote on Brexit before Christmas in order to get it done by the deadline.
The pound hasn’t yet reached the lofty heights of Friday’s high at 1.3516 versus the US dollar, the highest since May 2018, and is still facing some tough resistance at the 55-month moving average at 1.3416. That moving average has contained prices on a closing basis since October 2014. GBP/USD is now at 1.3389.
GBP/USD Monthly Chart
Flash PMIs dominate
Today is the day for the Markit flash PMI numbers for December from around the globe. Analysts are anticipating improvements for Germany, Euro-zone and the UK with a slight deterioration seen for the US.