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MARKET WRAP: A holding pattern before big week
Friday’s blowout US jobs report kept Asian stock market sentiment upbeat at the start of the new week. In Europe, indices are down as investors strap in for what promises to be a busy week. There are two big central bank meetings, the US-China tariff deadline and the UK election. Our feeling is that these will all pass with favourable, or at least manageable results for markets. However, with major averages at 52-week highs after a strong year and with 4 big events that could unexpectedly turn sour, the risk : reward for traders favours the downside.
The FTSE 100 is being restrained by losses in oil and mining sectors after a fourth monthly decline in Chinese exports highlighted the fallout from the trade war.
The DAX is nursing small loses but is outperforming other indices in the region thanks in part to data showing an unexpected rise in German exports for October.
The S&P 500 looks set to open slightly lower but within 1% of all-time highs after the strong NFP-led gains on Friday. There’s little in the way of US data until the Fed makes its interest rate decision and sets out its economic projections on Wednesday. That probably means – you guessed it – comments on the trade war as the major catalysts. The clock is ticking in the last week before new US tariffs begin on December 15.
EURUSD The euro is off the 4-day low seen after the surprisingly strong US jobs report. Still, as strong as the November jobs report was, our feeling is it doesn’t move the dial for the Fed this week. It is the first press conference for new ECB president Christine Lagarde on Thursday. A market-moving slipup seems unlikely since she is well experienced from similar events at the IMF.
GBPUSD The pound is at its highs of the day (HOD) after weekend polls mostly showed a widening lead for the Conservatives with three days to go until the UK election. EURGBP is making fresh two-year lows. A poll from BMG has the Conservative Party with 9 point lead over Labour, up from 6 a week ago. Survation showed the lead widening to 14 points from 9 a week ago, while polling from Savanta ComRes saw the lead narrow to 8 points from 10 a week ago. There are some discrepancies about the size of the lead but the latest polls all point to a Sterling-friendly Conservative majority.
Crude oil is a little softer at the start of the week, trading in line with general market sentiment. For WTI to be above $60 at the end of the week, we’ll need at the very least, an extension to the US tariffs deadline. In the context of typical oil market volatility, we thought the post-OPEC gains were rather constrained. That would suggest if we can get through December 15 without more US tariffs on China, there is still some pent up speculative demand for oil.
Gold fell back from $1480 per oz and its 50-day moving average after US jobs report sent the dollar flying on Friday. The best result for gold this week would be a dovish Fed hinting at rate cuts after its pause and Trump throwing a 2019 phase one trade deal out the window with more tariffs. However, consensus is that the opposite happens- and that threaten a break below $1450 support.