Despite mounting concerns over trade disputes and cyclical downturns, the three US indices are likely to end the year with astonishing gain. In 2019, the Nasdaq, S&P 500 and Dow have registered 34.8%, 22,5% and 22.0% gain before the last trading day of the year.
The Fed’s three round of interest rate cuts, a phase-one trade deal and expectation of a cyclical rebound are among the main drivers of this bull-run.
China’s CSI 300 and Shanghai Composite have also registered 35.6% and 21.9% YTD gain despite numerous bad news and apparent slowdown in China’s crucial manufacturing sector. After experiencing a volatile year, USD/CNH has come back to below the 7.00 mark as trade tensions ease. However, as the US-China confrontation is deeply rooted in the structural issues that haven’t been fully addressed; the currency pair will still be a focal point in 2020 in the event of the re-escalation of tensions.
Recent rallies in China’s large brokerage firms namely Citic Securities and Haitong Securities suggest that the authorities are ready to open up its capital market further by introducing a registration-based IPO system and welcoming foreign investment. In the past, a rally in the brokerage sector was widely viewed as the beginning of a good year for the stock market.
In contrast, Hong Kong and Singapore have relatively underperformed global peers with their benchmark indices ending the year with 9.5% and 5.0% gain respectively. The relative underperformance in emerging markets (EM) this year could pave way for a ‘catch-up rally’ into 2020, provided a cyclical upswing in manufacturing and trade do indeed happen.
Singapore exchange is on half-day trading today due to it being New Year’s Eve.
EUR/USD surged to above 1.120 mark for the first time since mid-August due to weakness in the USD. Similarly, AUD/USD has reached 0.7000 mark this morning, hitting its highest level seen since 24th July. Strengthening in riskier currencies reflects favourable risk appetite that could fuel rally in equity markets.
This morning, China NBS manufacturing PMI diverted another positive catalyst, with the reading coming in at 50.2, versus consensus forecast of 50.1. This marks the second month of expansion in China’s manufacturing sentiment which is crucial proof of its economic stabilisation.
China NBS PMI
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Margaret Yang Yan