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Trade remains in play, GDP reports in focus

Trade remains in play, GDP reports in focus

Volatility in the financial markets continues to be low as there are no big news stories for traders to grab onto. 

European stock markets largely finished higher yesterday, but overall the week’s move has been directionless.

US stocks reached record highs again despite the fact the House of Representatives voted to impeach President Trump. The next stage of the process is there will be a vote in the upper house, the Senate, but seeing as it has a Republican majority, the chances of that house voting to remove Mr Trump from office are basically zero.

The US-China trading relationship is moving along as the Chinse finance ministry have selected six US products that will not face tariffs after 26 December. It is a small gesture with a positive message, and that helped the S&P 500 close above 3200.

The USMCA trade deal was backed in the House of Representatives last night, and it is likely to be approved by the Senate in the New Year. The deal has hit auto makers in Japan as the new agreement will require that 75% of auto parts must be sourced from North America, while currently the requirement 62.5%.    

The US revealed some largely disappointing economic announcements yesterday. Existing homes sales cooled by 1.7% last month, and economists were expecting a dip of 0.2%. The Philly Fed manufacturing index dropped to 0.3 from 10.4. On a positive note, the jobless claims reading fell to 234,000 from 252,000.

James Bullard of the Fed admitted the interest rate hike of December 2018 was a mistake, and the central banker said he sees no reason for rates to change in 2020.   

The Bank of England (BoE) kept rates on hold at 0.75%, meeting forecasts. Two of the nine policymakers voted in favour of cutting rates, also in line with forecasts. The BoE lowered its fourth-quarter growth forecast to 0.1%, from 0.2% in November. It was cited that exports as well as investment remain weak. Earlier in the session it was revealed that UK retail sales declined by 0.6% last month, but that did not include Black Friday – a busy shopping day, so the December reading should see a rebound. Sterling lost ground against the euro and the dollar on the back of the updates.  

The oil market was nudged higher on the back of the feel good factor surrounding the US-China trading relationship. The trade spat between the two largest economies in the world acted as a weight on the oil market, and the progress that has been made has seen oil rise.  

At 7am (UK time) the German GfK consumer sentiment report will be posted, and economists are expecting it to tick up to 9.8 from 9.7.

The final reading of UK third-quarter GDP will be posted at 9.30am (UK time). On a quarter-on-quarter basis and on a yearly basis, the reports are expected to be 0.3% and 1% respectively. Public sector net borrowing is tipped to drop to £5.6 billion from the £10.5 billion registered in October. The reports will be posted at 9.30am (UK time).   

The US will also be reporting the final reading of its third-quarter growth, and traders are expecting 2.1%. The core PCE report is the Fed’s preferred measurement of inflation, and the consensus estimate is 1.6%. Personal income and consumption are tipped to be 0.3% and 0.4%.The updates will be posted at 1.30pm (UK time).

The final reading of the University of Michigan consumer sentiment is expected to come in unchanged at 99.2.   

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 retarget 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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