Financial market research and analysis

Traders have plenty to be getting their head around as trading kicks off for the new week. Developments in the major themes that have been plaguing traders over the past quarter are once again flaring up and pulling markets lower. And still no sign of a Santa rally.

US Jobs Creation Softens
Weaker than forecast US jobs data is fueling concerns over the outlook for the US economy and the Fed’s next steps on rates. 155K jobs were created in November, short of the 198k forecast. Average hourly earnings also came up short, leaving little to cheer. According to the CME Fedwatch, the market is pricing in a 72% probability of rates being hiked in December. This is down from 82% just one week ago. Following the inversion of the yield curve last week, the markets are jittery about slowing US economic growth. Up until now a strong US jobs market has supported a confident economic outlook. Signs that the jobs market could be coming under pressure, is forcing traders to question the Fed’s next steps. The dollar closed lower versus a basket of currencies on Friday and is seen extending those losses overnight

China Threatens US Over Huawei CFO Arrest
Rising US – China tensions will also be back under the spotlight as China summons the US Ambassador to Beijing. Last week’s arrest of Huawei’s CFO in Canada for extradition to the US, is snowballing into a diplomatic row capable of turning to dust any G20 trade talk progress. The move by the US has infuriated China, which has warned of serious consequences if the CFO is not released. From previous experience we know that Trump is not one to give in to threats. Reflecting this knowledge, Asian markets were trading lower overnight and European bourses are pointing sharply lower this morning.

Brexit Uncertainty Going No-where Fast
As if that wasn’t sufficient to deal with, Brexit is set to come to a head this week as the British Parliament are expected to vote on Theresa May’s Brexit plan on Tuesday. Theresa May is expected to lose the vote by a substantial margin, opening the door to a range of potential outcomes. These go from renegotiating and a second vote, to a hard Brexit, to no Brexit or even a second referendum. With the potential outcome as clear as mud, we can expect volatility in the pound to remain elevated.

Oil’s Dead Cat Bounce?
Perhaps the only positive stemming from last week’s developments came from OPEC. The oil cartel agreed to slash production sending oil rallying. However, the black stuff quickly pulled off session highs, suggesting that the move by OPEC could be cloaked in disappointment. OPEC agreed to cut 1.2 million barrels per day within the 1 – 1.3 million the market had been expecting. Despite the initial knee jerk reaction, there is a good chance that oil could continue to come under pressure as a cut at these levels was already priced in.

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