The US-China trade story has been the gift that keeps on giving as last week European equity markets enjoyed a rally – the Stoxx 600 reached an all-time.
The mood on Wall Street was even more bullish as the Dow Jones and the S&P 500 racked up all-time highs. The trade story has been at the forefront of traders’ minds for months and the fact that stage one has been agreed upon has been a major boon to the markets.
Commodities received a nice boost too from the US-China story as copper as well as oil have both racked up multi-month highs. The gap between these commodities and equities is huge as some indices are essentially at all-time highs, while the commodities are nowhere near their-respective record-highs. Given the slowdown in the global economy, it is fair to say that stocks have lofty valuations also due to loose monetary policy.
Overnight it was announced that China will lower the tariffs on over 850 US products as of 1 January, and the levies on some IT products will be cut in July. This is another positive step in the US-China trade story. Stocks in Asia are mixed.
On Friday it was revealed the UK economy actually grew by 0.4% in the third-quarter, while the previous reading was 0.3%. The year-on-year report showed 1.1% growth. Last week the Bank of England kept rates on hold at 0.75%, meeting forecasts. The central bank is likely to keep policy on hold until Brexit is finally sorted out. It is possible the UK might leave the EU without a deal at the end of the transition period, but that’s one year away.
It was reaffirmed the US economy grew by 2.1% in the third-quarter. The Fed’s preferred measure of inflation, the core PCE reading stayed unchanged at 1.6%, meeting forecasts. Personal income jumped from 0.0% to 0.5% last month, and personal spending ticked up to 0.4% from 0.3%. The reports are encouraging, especially the spending reading as consumption drives the economy.
At 1.30pm (UK time), the US durable goods report will be published. Economists are expecting the reading to be 1.4%, which would be a big increase from the 0.5% posted in October. The report that strips out transport is tipped to cool from 0.5% to 0.2%.
US new home sales are expected to rise by 0.3%, and that would be a nice rebound from the -0.7% fall posted in October. The US housing market is strong as the latest building permits plus new builds reports hit 12 year highs.
EUR/USD – has been pushing higher since late November and while it holds above the 100-day moving average at 1.1064, it might retest 1.1179. A move to the downside might target the 1.1000 area.
GBP/USD – has retreated sharply from the seven month high and if the bearish move continues it might target the 1.3012 – 1.2900 zone. If the wider positive trend continues it could retest 1.3200.
EUR/GBP – has rebounded from a three year low, and if that bounce back continues it might target 0.8600. Should the wider bearish trend continue it might retest 0.8400.
USD/JPY – while it holds above the 50-day moving average at 108.64 it could target 110.00. A move back below the 50-day moving average might bring 107.82 into play.
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