Markets have been choppy amid varying views on the prospect of any sort of trade deal this weekend between Trump and Xi at the G20. Oil has been especially volatile, initially taking more heat before it was reported that Russia might join OPEC in limiting supply. The latest readings on German and US inflation have underwhelmed expectations, but activity indicators are generally better, except for US housing. The AUD has perked up a little beyond 0.73 since the release of the FOMC Minutes pointing to more rate flexibility ahead after a December hike, also pushing US equities back into the black. Meanwhile there have been conflicting reports ahead of Xi and Trump’s highly anticipated and important dinner meeting Saturday night in Argentina, after the G20 summit.
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Trump-Xi Meeting: still no clarity on trade tensions
There have been conflicting reports ahead of Xi and Trump’s highly anticipated and important dinner meeting Saturday night in Argentina, after the G20 summit. Rather than jump at headlines, the market has taken a laid-back approach and prices are treading water until we see the outcome. Early in the day, Trump tweeted the merits of his tariff policy and, as he was leaving for the G20, told reporters that the US was very close to a deal with China, but added “I don’t know if we want to do it. I am open to making a deal, but frankly, I like the deal we have now”, the latter comment implying he liked the tariffs in place that might put pressure on China to change its policies.
The Wall Street Journal reported that the US and China, ‘’looking to defuse tensions and boost markets, are exploring a trade deal in which Washington would suspend further tariffs through the spring in exchange for new talks looking at big changes in Chinese economic policy’’. This contradicts Trump’s comments last week that he thought it highly unlikely he would suspend the proposed increase in tariffs on 1 January.
Separately, the South China Morning Post reported that White House advisor Navarro who is a China hawk will now attend the Xi-Trump dinner this weekend after reports last week that he would not. I also note that bubbling away in the background, former Trump lawyer Michael Cohen is expected to plead guilty to charges of misstatements to Congress over statements about Russia during the 2017 election campaign. He has been assisting the Mueller Trump-Russia probe with extensive interviews. Trump called Cohen ‘’weak’’ and a ‘’liar’’.
It has been a choppy past 24 hours for currencies. The USD has been whippy and non-directional, testing both ends of it recent ranges. Oil seemed to be a factor, the USD following the better fortunes of US equities into the FOMC Minutes, before giving back some Interest Rate ground since.
After earlier testing 0.7340, the AUD/USD traded down to the figure, before again pushing 15-20bps higher after the release of the FOMC Minutes into the last two hours of the US session. Sterling has been bleeding further, EUR/GBP up above 0.8910 this morning on little Sterling news.
Inflation has been under focus with the release of Germany’s November CPI and the US October PCE deflators. Both missed expectations, the EU-harmonised CPI coming in at 0.1%/2.2% against expectations of 0.2%/2.3% (and seemingly not from oil that has still to come). The US Core PCE deflator came in at 0.1%/1.8% from a downwardly revised 0.2%/1.9% and short of the consensus 0.2%/1.9%. This only plays to the theme that buys more time for the ECB to ponder when they might begin to exit from negative rates and for the Fed to be increasingly data dependent and cautious with rates approaching neutral.
The FOMC Minutes released last evening said that another rise in the Fed Funds Rate would likely be warranted ‘’fairly soon’’ (i.e. December), but introducing more flexibility ahead, members discussing modifying the language on gradual rate hikes ahead. Of course, from the opposite perspective, should activity continue with momentum and inflation surprise on the high side, that would mean rate acceleration. But for now at least, inflation is benign, as we saw with the PCE deflators, the core deflator running at an annualised rate of 1.6% in the past six months.
Separately, Euro-Zone confidence surveys for November were mixed, the Business Climate Indicator up from 1.01 to 1.09, but Consumer Confidence steady at -3.9. In the US, while inflation was low, real consumption grew 0.4% in October, the Atlanta Fed lifting its Q4 GDPNow estimate to 2.6% from 2.5% on higher consumption now expected to be 3.2% in Q4. While consumption remains solid, housing continues to soften, Pending Home Sales down 2.6% in October. Weekly Jobless Claims also pushed higher to 234K from 224K, the highest since July, though some attribute this to normal noise around Thanksgiving. It does throw more attention on next week’s payrolls.
Commodities and Bonds
The big mover has been oil, initially lower before doing a quick about face on expectations Russia will join OPEC in limiting production, OPEC meeting December 6. WTI traded first to a new Thirteen Month low of below $49.50, but is now trading at $51.36, up over 2% for the day, Brent up 1% to $59.37. Treasury yields followed oil and equities lower in the first instance, 10y yields testing 3% before rising to 3.03%. Base metals are mostly a little higher, gold is steady with bulk commodities not eliciting too much new for analysts.
This morning on the Economic Front we have Euro-Zone Unemployment and CPI at 10.00 am. This is followed at 1.30 pm by Canadian GDP and Industrial Production. Finally we have the Fed’s Williams speaking on the economy in New York at 2.00 pm and the Chicago Purchasing Mangers’ Survey at 2.45 pm.
December S&P 500
My S&P plan worked well with market trading lower to my 2725 buy level before rallying over 30 Handles off its 2723 low print, before nervousness ahead of the Trump Xi Meeting tomorrow saw a late sell-off into the close. This move higher saw me cover my long position at a price of 2729 as I wanted to be flat ahead of the FOMC Minutes. I am still flat and today I will again look to buy the S&P on any dip lower to 2715/2723 with the same 2709 stop. The 200 Day Moving Average for the S&P is at 2762 and today I will be a small seller on any rally higher to 2760/2770 with a 2778 stop.
After Wednesday’s move higher in the Euro the market traded sideways for most of yesterday. I am still flat and I will continue to be a buyer on any dip lower to 1.1305/1.1335 with the same 1.1265 stop.
December Dollar Index
No change as I am still a seller on any rally higher to 97.10/97.50 with a 97.85 stop.
Shortly after I posted yesterday morning it was announced that the offices of Deutsche Bank were raided on suspicions of Money Laundering. As a result the DAX sold off to my 11280 buy level before rallying to my 11315 T/P level and I am now flat. The heavy price action in the DAX is a worry and if the Euro breaks and closes over the key 1.1505 resistance area then the DAX will be under more pressure. Today I will again look to buy the market on any dip lower to 11120/11180 with a 11075 stop.
No change as I am still a buyer on any dip lower to 6940/6980 with a 6905 stop. I still do not want to be short the market at this time.
Dow Rolling Contract
After lunch the Dow rallied to my second sell level at 25350 for an average short position of 25285. Thankfully the market sold off over 130 points from this rebound high which enabled me to cover this position at my 25260 T/P level as outlined in yesterday’s commentary and I am now flat.. After the FOMC Minutes were released the Dow spiked higher to 25480 before selling off into the close. The Dow has resistance at its 50 Day Moving Average which comes in at 25592 and today I will be a small seller from 25580/25700 with a 25820 stop. I still do not want to be long the market at this time.
I am still flat the market and today I will now raise my sell level slightly to 6980/7040 with a 7085 stop.
I am also still flat the BUND which is trying to break higher as the German economy continues to slow with little or no inflation. Today I will now raise my sell level to 161.80/162.25 with a 162.55 stop.
Gold Rolling Contract
Gold is stuck in a trading range between 1205 and 1230 which it has been for most of the past few months. I am still flat and today I will continue to be a buyer on any dip lower to 1204/1212 with a 1197 stop.
Silver Rolling Contract
I am still flat Silver and today I will raise my buy level slightly to 13.90/14.20 with the same 13.55 stop. Remember for the last three Decembers’ both Gold and Silver have bottomed before having large rallies into the following January. Given how weak sentiment is to both metals it would be no surprise if the same thing happens next month.