US equity markets registered their largest monthly gain seen in over six months in November, despite trade uncertainty and mixed global data.
The S&P 500 index advanced 4.5% in total last month, extending this years’ astonishing 25-30% rally. ‘Window dressing’ is perhaps unnecessary this year and the intention to ‘lock up’ gains is going to play a big role in shaping the sentiment for the year end.
Worth taking note that the volatility index, VIX, has again come to its relatively low level, paving way for sudden jumps in volatility should there be any negative news or surprises. From a historical perspective, volatility has never stayed at 12-13 for sustained periods of time. This month, several key events including the OPEC meeting on 5th December, the UK election on 12th December and the 15th December tariffs deadline are among top market catalysts.
Sentiment across Asia is more bearish than that in the US as investors worry about the impending trade tariffs to be imposed on 15 December, if Beijing and Washington fail to work out a resolution in a phase-one trade deal by then. Sources in Beijing has informed the Global Times that China insists that the tariffs must be rolled back as part of the first-phase trade deal. A US pledge to scrap tariffs scheduled for December cannot replace the rollback of tariffs as part of the deal.
Traders today will be eyeing a string of manufacturing PMI readings from China, the EU zone and the US for clues of economic stabilisation. Markets expect the EU manufacturing PMI to have rebounded from previous month's level of 45.9 to 46.6. For the US market, it expects the reading to also rebound to 49.2 from last month's reading of 48.3.
Markets have also put high expectations for this Friday's US non-farm payrolls with Reuter’s consensus pointing to a 180k rise in the jobs market, a big leap up from last month's reading of 128k. Confidence in the US employment market is likely to buoy market sentiment but a miss will likely do the reverse.
The OPEC members will gather in Vienna on 5-6th December for an oil meeting, in which an extension of their commitment to cut production will be carefully watched by oil traders. An earlier report suggested that the oil market is likely to face oversupply in 2020 as global demand slows.
According to a Reuter’s survey, OPEC members have slashed output in November to 29.57 million barrels per day, a slight drop from October's level. This is mainly due to Saudi Arabia's reluctance to pump, perhaps in an attempt to boost oil price to support the Aramco IPO. According to Reuters, Saudi Arabia is pumping far less than an OPEC-led supply deal allows after resuming normal supply post attacks on their facilities in September.
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Margaret Yang Yan