Stock markets in Europe posted impressive gains on Friday, while US markets ended the session making minimal ground.
The announcement the US and China reached phase one of the trade deal was the main driver of market sentiment. Beijing agreed to purchase roughly $40-$50 billion worth of agricultural goods as a gesture of goodwill. There appears to be an absence of clarity regarding the size of the agricultural orders, which is why stocks in Asia are mixed.
The US said it won’t be imposing tariffs on roughly $150 billion worth of imports from China as both sides have come to an agreement. The deal that was brokered should be signed in January, and 30 days after the agreement is signed off, the US will reduce tariffs on $120 billion worth of imports to 7.5%. The US-China trade spat has been going on for approximately for 18 months, so it has been a major story for some time now. After much toing and froing, the some progress has been finally made.
The fact US equity markets have soared in recent week bodes well for President Trump’s chances of getting re-elected in November 2020. The US president is likely to keep chipping away at China in relation to trade, as the Trump administration have been a long-standing critic of China’s intellectual property (IP) rights, so the argument will be probably rebooted on the run up to the presidential election campaign. The trade fight was never just about things like soybeans and pork, Washington DC are very unhappy with China’s IP policy, but Beijing can play the long game, so that will be a tougher nut to crack.
On Friday, the FTSE 100 as well as the pound outperformed on the back of the Conservative party victory in the general election. Boris Johnson’s party won their largest majority in the House of Commons since 1987. The pro-business as well as pro-Brexit Tories have a sizeable majority which should bring about more decisive governing. British banks plus housebuilders posted big gains on Friday on account of the election result.
Overnight, China released a number of economic reports. Fixed asset investment came in at 5.2%, meeting forecasts. The industrial production reading was 6.2%, while the consensus estimate was 5% Retail sales came in at 8%, and the consensus estimate was 7.6%.
Between 8.15 and 9.30am (UK time) a number of major economies will release their flash manufacturing and services PMI reports. The French manufacturing and services reports are expected to be 51.2 and 52.1 respectively. The German manufacturing and services readings are tipped to be 44.5 and 52 respectively. The UK manufacturing report is expected to be 49.3, while the consensus estimate for the services report is tipped to be 49.5.
At 2.45pm (UK time), the US will announce the manufacturing PMI report and the services PMI reports, and economists are expecting readings of 52.6 and 52 respectively.
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 been in a bullish trend since early September and if the positive run continues it might target 1.3600. A pullback might find support at 1.3361 or 1.3200.
EUR/GBP – recently fell to a level last seen in July 2016, and if the bearish move continues it might target 0.8200. A rebound in the currency pair might target the 0.8600 area.
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 107.88 into play.
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