News & Analysis

Week Ahead – “Highly Successful Meeting”

December 3, 2018

Market Overview – “Highly Successful Meeting”

Last week was dominated by two main events: Fed Speeches and the G20 summit. There is no doubt that this year has been challenging for the stock markets which caused investors to be anxious and cautious. However, November ended on a positive note as the dovish shift from the Chairman of the Federal Reserve resolved the “Fed aggressive rate hiking” risk.

December started on a buoyant tone with renewed trade optimism. The statement from the US Press Secretary on the President’s working dinner with China in Argentina was upbeat and “highly successful”. President Trump stated: “This was an amazing and productive meeting with unlimited possibilities for both the United States and China. It is my great honor to be working with President Xi.”

Week Ahead – Sentiment Lifted on Truce Deal

Equity Markets

Investors stepped into the last month of the year with more confidence. A truce deal was agreed between China and the US over the G20 summit. The two major headwinds – interest rates hikes and trade tariffs, which drove the markets on a rollercoaster ride, are set on the right path. There are no agreed concessions yet, but the meeting ended with a ceasefire for the next 90 days. The main highlights of the meeting were:

President Trump has agreed that on January 1, 2019, he will leave the tariffs on $200 billion worth of product at the 10% rate, and not raise it to 25% for the time being.
China will agree to purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other products from the United States to reduce the trade imbalance between the two countries.
China has agreed to start purchasing agricultural products from US farmers immediately.
President Trump and President Xi have agreed to immediately begin negotiations on structural changes, with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture.
Both parties will endeavour to have this transaction completed within the next 90 days. If at the end of this period the parties are unable to reach an agreement, the 10% tariffs will be raised to 25%.

We expect the start of the week to be driven by the reactions on the weekend headlines from the G20 summit. After the relief rally last week, Wall Street managed to finish the month with modest gains. The bullish momentum will likely continue through the start of the week, and Asian stocks are poised to bounce higher as truce will last for 90 days.

The risk-on tone is back, but investors will continue to keep an eye on the trade headlines and keep monitoring the downside risks to global growth.

Currencies Markets

The FX markets kicked off with a few bullish gaps on the open. A temporary truce between Beijing and Washington has lifted sentiment in the markets and allowed other pairs to climb higher against the greenback. While the price action will mostly be G20-driven at the start of the week, the Fed policy, Brexit and Euro-politics will be under scrutiny, along with a busy calendar.

The United States – Powell Speech and Non-farm Payroll

The economic data flow across the week will be significant in pushing the US dollar higher after being battered by a dovish shift by the Fed. There are a few Fed speeches again this week, and Powell’s testimony will be standing out. Market participants are debating whether the recent remarks are actually “dovish” and what is the “actual neutral rate” for the Fed. Therefore, on Wednesday, the markets will be able to gather more insights on last week’s message.

On the data front, the US PMI figures and jobs report will be released and are expected to remain on track despite some slight moderation. Non-farm payrolls in October were up by 250k, and jobs increases are projected to moderate by 45k, but the data will remain solid at the 200k level.

Europe and the UK- Attention back to Brexit and Italy’s budget

The focus will switch back to Brexit and Italy following the G20 summit. The Parliament vote is due on the 11^th, and we will see continue to see Theresa May pushing her Brexit deal. Amid a quiet calendar, the price action of the Sterling pairs will remain primarily driven by Brexit headlines as traders will look for clues and remarks from both the Conservative and Labour MPs. The BoE Governor Mark Carney’s speech on Tuesday can pose a threat to the Pound after last week’s backlash.

In Europe, Italy and the European Commission both are maintaining a firm stance on the budget spending, and we are expecting the frustrations to mount. The shared currency will likely face downward pressure if the EC is ready to discipline Italy. On the data front, the PMI figures and GDP figures will be the highlight of the week.

Asia & Australia – G20 and RBA

The Aussie calendar will be busier this week. Traders will start the week with the release of the Building Permits followed by Caixin PMI in China. The RBA speech on Tuesday will be in the limelight, but investors are not expecting any material changes. The week will progress with the release of a slew of key economic indicators- GDP estimates, Retail Sales, Trade Balance and Construction Index. The Aussie dollar was seen strengthening against the greenback recently and the data this week might further support the local currency if traders see that the RBA’s upbeat view of the economy is justified.

In Asia, aside from the PMI figures, trade balance, Imports and Exports figures will be released. PMI and trade figures were affected by trade tariffs, but any downbeat figures might not trigger an overreaction seen recently given the optimism following the trade truce.

Commodities Markets

At the G20 summit, it was reported that Russia and Saudi Arabia agreed to renew a pact on oil production cuts as oil prices plummeted on global markets. WTI and Brent are in a freefall and have lost ground after hitting highs in October. The bloodbath might continue until there is more concrete agreement on production cuts. The OPEC meeting this week will be critical for the direction of the oil prices.

Tuesday, 4 Dec 2018 Indicative Index Dividends ^{Dividends are in Points}
ASX200	WS30	US500	US2000	NDX100	CAC40	STOXX50
0	0	0.154	0.044	0.151	5.23	1.601
ESP35	ITA40	FTSE100	DAX30	HK50	JP225	INDIA50
0	0	0	0	0	0	0