Tickmill UK Daily Market Notes

[tickmill-news]

China offers little help to solve bad bonds problem, aiming at deflation of the credit bubble

Respite on the Chinese stock market has quickly run out of steam after a pledge by the Chinese authorities to solve the trouble with bad private bonds.Respite on the Chinese stock market has quickly run out of steam after a pledge by the Chinese authorities to solve the trouble with bad private bonds. According to the latest data, they are relatively reluctant to directly participate in the rescue of firms, although in 2016 everything was different.

On Monday, a “recommendation” to private funds was followed to take part in the bailout of troubled shares that companies used as collateral for loans. 11 brokerage firms have agreed to allocate 21 billion yuan to buy shares, which is basically a drop in the ocean of 3 trillion. yuan of toxic loans, which are now collateralized by a falling stock market.

The government was not ready for anything more than putting some straw in the landing spot, what is surprising, as the private sector provides 50% of taxes, more than 60% of GDP, more than 80% of urban employment and 90% of new jobs created.

Perhaps the government bets on recovery of credit system with manageable credit bubble deflation (“defaults will start from most inefficient and high-risk which is good”) but at some point, may meddle with the process is something goes wrong.

But repairing consumer and corporate sentiments after the downturn of economic expectations is usually much more expensive and longer.

The situation is very similar to the 2008 crisis in the US, but instead of “share”, put the word “housing market”. The Fed has come to the rescue in the US, but in China, PBOC will only have to start carrying the can. While the Central Bank is focused on the banking system and the support of the manufacturing sector, which is rapidly losing pace of growth due to disrupted trade ties with the United States.

China, though, can’t fully deploy the mechanism of increased consumption to support the economy, despite the growth rate of imports overtaking production. Weakening yuan worsens the outlook for accelerating imports.

Here is the data that gives some clue on pledges shares problem in China:

· 724 out of 734 technology companies of ChiNext resorted to equity financing practices. The market capitalization of companies is about $580 billion. Since the end of May, the index has lost more than a third – from 1876 points to 1205 points.

· 16 percent of the “A” class shares are pledged as collateral for loans. In 2015, this share was 10.3 percent.

· In the broad market, 148 companies out of 3,571 have pledged more than 50% of their own equity loans, despite a 50% legal limit, thanks to shadow banking. (data from a national Chinese depositary).

· On October 9, value erosion of shares is close to margin call for 780 companies. Positions of 594 companies are approaching forced liquidation, i.e. the time when it comes to paying for loans.

Comparing the drop of the Shanghai Composite Index and ChiNext, the difference in the fall may be precisely the difference of risks from using financial leverage, which is higher in the technology index companies.

ShComp keeps solid footing after a bullish Monday, although closed today in a modest plus. A sweeping fall below 2,500 is unlikely to happen for some time, the index will mark time at the crucial round level. It is impossible for now to mention any essential drivers for upside correction though.

A few words about the past US treasury bond auction. With a progressive increase in placement ($26 billion per one auction in January against $38 billion at the moment), demand for paper remains high, the bid-to-cover ratio was at 2.671, against 2.437 at the last auction, slightly below the 6-month average at 2.75.

What’s really curious is a sharp surplus in favour of indirect bid. Their share amounted to 52.6% in the auction, the largest since December 2017, against 40% last month. Direct buyers, something “scared off” this time their share fell to 5.5% versus 13.4% last month.

Recall that indirect applications are mainly represented by foreign buyers acting through US intermediaries.

The main idea here is that demand for a risk-free security asset has increased from foreign demand. Definitely this trend is guided by the expectations of serious market turbulence ahead.

 

[tickmill-news]

What is a buyback blackout period? Can anything bring the US stock market back to life?

The blue line signifies the yearly change in the balance sheets of world central banks. In other words, the waves on the chart are injections of money supply into the economy, i.e. cyclical swings from easing to tightening. Amazingly, every time the yearly change reached zero, central banks resumed buying assets in response to economic challenges.

Now that the Fed is in the midst of tightening policies, the ECB is suspending paper purchases, and the Central Bank of Japan is looking for ways out of the vicious circle of deflation, the world economy may again begin to dictate the need for soft policies, and the first signals for this have already been given. Take, for example correction in the US stock market.

10 years of relentless rally turned into a bloodbath in October. Now only 20% of global assets left investors with positive gains. The rest became uneconomic investment:

This chart well explains the current strengthening of the dollar, as a humdrum surge in demand for liquidity. That is, now, assuming an overreaction in the stock market in response to the high pace of tightening by the Fed, which goes beyond the fundamentally justified level, there is a certain “panic” bias in favor of liquidity (i.e., the dollar). It can be eliminated as quickly as it appeared with the first signs of calm returning to the stock market. We have to keep this fact in mind, and on the basis of this, shape appropriate expectations for a rally of the American currency.

History knows only two times with similar observed “lack” of yielding assets: during stagflation in the United States in 1970 and the financial crisis in 2008. That is, in conditions which were much worse than the current ones. Then, from the historical point of view, the irrationality of the depth of current selloff is the most plausible version of what is happening. On the other hand, if mushrooms grow after rain, no matter how fertile the soil is, it is pointless to wait for them without rain.

Cheap credit has long dominated the minds of investors, and after parting with it, the vacant place is not so easy to fill.

However, there are several suitable candidates for nomination. The first is a stock repurchase. In one of my September notes I mentioned that in October, companies should have to face time constraints in stock repurchase transactions (buyback blackout period). It was introduced as a measure to counteract the asymmetry of information between managers and shareholders, which reaches its peak a week or a few days before earnings data is released.

A party with more access to sensitive information, i.e. managers, is reasonably in a better position when it comes to buying/selling shares before reporting day. For example, a company, knowing that earnings will beat estimates, may urge investors to sell their shares of the firm, thus putting investors in an unfair position. Conversely, if managers believe that reporting will upset investors, they may try to get rid of stocks at a still high price before the data hit the wires.

Blackout period has passed its peak and companies will most likely resume purchases, which have been fueling growth of the stock market to considerable extent:

Conventional wisdom is that growth catalysts which are clear and understandable to investors should be well covered in the press and also stir attention among investors. It does makes sense and let me show you an example. Here is a growing buzz in media and some data from Google Trends:

Now, about candidate number two. This is of course the aggregate demand in the American economy and all the indicators relating to it. You can pay attention to the Friday row of economic data, including Core PCE, consumer optimism and producer prices. The main conclusion is that imbalances in the US economy are likely to become more evident:

Consumption and GDP growth outpaced forecasts for the third quarter, but inflation, measured through personal spending, stubbornly remains low. Its growth in the third quarter was only 1.6%. In conventional economic model, an increase in output is usually accompanied by an increase in prices, but the data indicates the opposite.

The only explanation that comes to my mind is a combination of the effects of monetary and fiscal policy. Tax reform better targets the consumer, giving him not just the opportunity to get a cheap credit (as in the case of monetary easing), but a real increase in disposable income. This caused an increase in consumption with some inertia, which we observe.

At the same time, the tightening of the Fed effectively restrains inflation by holding back plans to expand output. The survey indicator of future capital spending in the US manufacturing sector has been declining 6 months in advance since the beginning of this year:

So does growth really keep solely on tax maneuver? Candidate number “two” for supporting stock market rally should be considered transitory?

Please note that this material is provided for informational purposes only and should not be considered as investment advice. Trading in the financial markets is very risky.

 

[tickmill-news]

Mid-term elections keep global markets in suspense

The index of economic activity in US manufacturing and services sectors came at 60.3 points in October, beating the expectations of 59 points. In September, the indicator hit the local peak at 61.6 points showing that companies are facing a surplus of new orders, as well as a shortage in labor force. The leading nature of the data generated through surveys suggests that companies will likely increase output, as well as maintain high employment rates in November.

The dollar is trading in a narrow range against major opponents on Tuesday, as caution dominates the mood and risk appetite with the midterm elections in the US being held today. The American nation will decide whether they like the combination of huge tax cuts and the hostile trade policy of the current administration. The average market outlook assumes that Democrats will take control of the House of Representatives, and the Republicans will remain with the Congress.

Trump’s policy largely explains the strong dollar that we are seeing now, so the outcome of the elections will likely be interpreted by investors as follows: if the Republicans succeed in defending the House of Representatives, it will be a big bullish surprise for the dollar and it will have to shoot up; if the Democrats gain control of the House of Representatives, then the dollar will be traded in the red zone for a while.

The loss of control over the House of Representatives will make it difficult for Trump to carry out large-scale reforms, including the tax reform “for the middle class”, which may further increase the budget deficit by $2 trillion for 10 years. The confrontation with China may also lose some color, as supporters of liberal trade Democrats will not allow the increase of protectionism, for example, through the introduction of duties on all imports from China.

The European currency remains under pressure, as the EU’s appeals to add modesty to Italy’s budget expenditures for the next year did not bring results. The deadline for a deal is set for the next week, but the absence of leverage on populists allows us to expect that the decision will be either postponed or come at the expense of concessions from the EU. Unfortunately, European diplomats cannot object to the manipulation of EU membership by Italy, so they will probably be forced to accept their conditions.

The Australian Reserve Bank made the widely expected decision to keep the rate unchanged (1.5%). Most investors believe that the cost of borrowing will remain at 1.5% at least until the middle of 2019. AUD responded weakly to the decision and even strengthened slightly against the dollar. The RBA has no incentive to raise the rate now, as in the real estate market, a problem issue for the Central Bank, there has been some cooling, so the course to stimulus is likely to be maintained without any particular risks.

Please note that this material is provided for informational purposes only and should not be considered as investment advice. Trading in the financial markets is very risky.

 

[tickmill-news]

Strengthening of the Democrats sends relief waves over the US stock market


US Congress elections were deemed as the main source of “headwinds” for Trump’s somewhat reckless policies, so the market was in no hurry to make guesses on the long-term consequences of the president’s threats and initiatives, betting on the temporary freedom of White House’s power. The division of power in the United States between the two rival parties happened according to the baseline scenario: The Democrats won the House of Representatives, while the Republicans retained control of the Senate.

The strengthening of power in the hands of the Democrats identified a bearish outlook for the dollar, which has been extending a signal for rally from the contradictory chain of relationships between US tariffs and the Fed’s actions over the course of the last three months. Today, the US dollar index lost about 0.2% after a short rally in Tuesday’s session.

Restoring the balance of power clearly promises to delay the war with China, as Trump will have to overcome the additional resistance of opponents and spend more time on the next steps to escalate the conflict.

The dollar could be supported by the Fed on Thursday. Tomorrow, Powell will announce the interest rate decision, but it is likely that during the press conference he will repeat the mantra about the benefits of raising rates to preserve the historically rare state of the economy (low inflation & low unemployment). It will be curious to see the opinion of the regulator about the recent market correction, in particular, how positive feedback can influence the Central Bank’s plans to raise the rate.

In my opinion, since the plans for the long-term bear market have failed and the S&P 500 is targeting the main resistance at 2800, the chances for the Fed to slow down become even smaller. According to some estimates, the fall to 2400 could be a trigger for the Central Bank, but with a distance from dangerous levels, one should be inclined to favor a bullish interpretation of the decision on Thursday.

Tomorrow there will be a whole series of data on China’s foreign trade (export / import / trade balance), which will probably confirm the recent decline in production rates and a slowdown in export activity.

Since the economy has clearly entered a phase of slowdown, the data will probably be interpreted on a scale from “neutral” to “negative”. Unfortunately, there is no chance to talk about positive economic reports now, as structural imbalances in the economy do not have the possibility for a quick elimination and the indisposition may be prolonged. Data on foreign direct investment will probably be able to save the mood. If external support from investors beats expectations, we can expect the leveling effect of this indicator on foreign trade readings.

Please note that this material is provided for informational purposes only and should not be considered as investment advice. Trading in the financial markets is very risky.

 

[tickmill-news]

Consumption slack adds to Chinese problems; industrial data beats estimates on fiscal support

The data on Chinese economy released today offered a mixed impression about the government’s attempts to fix inefficiencies and ease recession risks. Slowing retail sales was unexpectedly countered by uptick in industrial output and investment in fixed assets which is quite surprising and worrying at the same time.

Together with the data on loans that were released yesterday, Wednesday figures suggest that economy conditions will continue to degrade at least until the end of 2018, since the government was a bit late to come up with stimulus measures.

The authorities have increased fiscal support for the manufacturing sector and the population (through taxes), while reducing monetary support, thus avoiding direct pressure on interest rates and weakening the yuan, which in turn leads to capital outflows. The number of fresh loans issued by the banks fell to 697 billion yuan in October, from 1,380 billion in September, i.e., almost halved. The tightening of credit conditions was priced in the market, but at a less rapid pace, at about 904 billion yuan.

The growth rate of money supply (aggregate M1) slowed down to 2.7% in annual terms against a 4.2% forecast. The solid signal about shrinking money supply failed to provide substantial support to the yuan, which oscillates in a narrow range around the level of 6.94 per dollar. However, the intensity of the outflow of capital seems to have weakened, since the clear impulses upward in the intraday movement have not been traced since the beginning of this week.

One of the key prospective pillars of the Chinese economy is a huge untapped potential for consumption, while it does not allow the authorities to rely on it yet, since it functions poorly in “stressing conditions”. Domestic consumption, which has grown at an accelerated pace since recent times, slowed in October. Retail sales, a less elastic economic indicator to the decline in household income, (unlike, for example, durable goods), slowed down from 9.2% to 8.6% in October, the lowest since May of this year. The prolonged decline in car sales in China has put the world’s largest car market on the verge of downturn for the first time since 1990. Sales of garments reached a two-year low, indicating a decline in consumer optimism.

Reduction in consumer spending could be explained by several reasons, such as mortgage debt, which requires an increasing proportion of income, falling welfare due to a decline in the stock market and declining return on investments. Tightening access to credit financing (as we see from the data on new loans) makes it difficult to smooth fluctuations in income.

The state’s fiscal support in the form of tax cuts on cars, imports, and an increase in income tax from 3,500 to 5,000 yuan may have arrived a little late, and deterioration in consumer confidence has led the population to save more and spend less.

The government has so far managed to “hold onto” the falling production, what we see from the data today. The pace of industrial output rose to 5.9% in October, contrary to forecasts of a slowdown to 5.8%. Positive economic figures are diluted into the fears of escalation of the trade war with the US. And recovery of the Chinese industrial sector is unlikely until the “war” with the US is not over. Recent data on US export orders for Chinese factories pointed to a 30% decline in annual terms.

The state is increasing its market participation as key client, focusing on infrastructure projects. For example, production of cement in October jumped by 13.1%.

The forward-looking indicator of investment in fixed assets rose unexpectedly in October, although it is unclear whether this indication came from the Administration (again, thanks to the “guarantees” in the form of infrastructure projects) or the corporate expectations really turned out to be more resilient than consumer ones. The main indicator rose by 5.7% in October against expectations of 5.5%, while investments in the private sector grew by 8.8% in annual terms.

SHCOMP was not impressed with the economic data, rolling back almost 1% on Wednesday to 2632 points.

In the UK, labor market data showed that the economy is recovering at a moderate pace. Salaries rose in line with expectations, while quarterly changes in unemployment were worse than expected. The pound is entirely absorbed by the events of the Brexit, with development being shrouded under a “three-layer fog” of speculations that benefit traders and algos. The political deadlock in which May’s conservative party found itself once again allowed GBPUSD to play below 1.29, but yesterday and today the pair is recovering in response to economic data and speculation about the progress in the negotiations.

One of the latest encouraging phrases of the Prime Minister was that “negotiations are in the endgame,” and the fact that the “Brexit draft has been agreed”, although it’s not the first time that such promises are coming out of the mouth of officials. GBPUSD is likely to linger at 1.30, as it is a convenient point to bet on a favorable Brexit outcome.

Please note that this material is provided for informational purposes only and should not be considered as investment advice. Trading in the financial markets is very risky.

 

[tickmill-news]

US Pence and Xi crash hope for peaceful resolution of US-Sino trade spat


For two consecutive days at the end of last week, the US stock market was in high spirits while expecting a thaw, which is likely to be the outcome of the upcoming meeting of Xi and Trump at the G-20 summit. The corresponding news background began to take shape after reports that the chief hawk in the White House, trade relations Robert Lightizer, does not expect new tariffs, and Trump may change his mind about introducing new ones, as Chinese colleagues sent a telegram with the planned concessions.


Hope was dispelled at the APEC summit in Papua New Guinea, where Chinese leader Xi and vice president of the United States, Mike Pence exchanged barbs, which only stressed that no country was going to give up the struggle for trade advantages.


The old wording of Xi, that the introduction of tariffs and thus the disruption of the global supply chains is a short-sighted decision and doomed for failure, caused applause among those present. Pence responded by saying that the United States would not retreat in a trade dispute with China and could even double tariffs if Beijing did not properly consider the issues that are the essence of the dispute, i.e. closeness of the economy and the theft of intellectual property.


As a result, Pence stated that there are no clear deadlines for resolving the dispute, dooming confrontation to an economic survival game.


Futures on the S&P 500 fell on Monday morning, indicating a weak start on Wall Street, as the market’s expectations of progress in the negotiations were not met. Markets put low expectations on Trump and Xi meeting in Buenos Aires, which need to be taken into account, because the positive outcome of the meeting can greatly encourage the market.


Dollar positions were somewhat discouraged on Friday after several Fed officials warned of risks to the Fed’s tightening policy. Richard Clarida and the President of the New York Federal Reserve Bank John Williams began to enter the discussion “from a distance”, expressing concerns about growth in Europe and China, but avoiding mentioning any warning signs related to the domestic demand. According to them, the external economic situation is of great importance in the US growth forecast.


US 10Yr Treasuries rebounded on the comments, the dollar is looking for a point to renew growth, but without success.


This week, the completed draft Brexit will be presented to colleagues in Brussels (deadline is 25 of November), but Prime Minister May faces strong resistance from both party colleagues and Labour Party, whose support is only growing. May warned that leaving the EU could be postponed again. Pound price action will depend on the verdict of European diplomats, but the final trend is likely to be determined only next week.


Remarks of the BoE officials tomorrow may also have an impact on the Pound, but it is unlikely that they can say anything definite when the status of England in the EU remains in question. Neutral language is the most likely scenario, so you could expect the Pound to remain dependent on political headlines.


Please note that this material is provided for informational purposes only and should not be considered as investment advice. Trading in the financial markets is very risky.

 

[tickmill-news]

Why Bitcoin is likely doomed to fail


The cryptocurrencies’ market cap fell by $60 billion in less than a week, after another Bitcoin mini-crash gave start to widespread rout.

The rapid liquidation of cryptocurrency portfolios has resulted in other major assets, such as ETH, LTC and XRP, falling in price to the lowest level since December 2017. At the time it was suggested that behind the world’s bet on revolutionary technologies there was only a cascade of speculative transactions and hunt for easy profit.

Last night, the BTC fell to $ 4,237, its lowest level in the last 13 months, then stabilized at about $ 4,500 on Wednesday. From the point of view of basic technical analysis, the main support for Bitcoin can be found at the weekly 200-moving average (200-sma) at the level of $ 3130.

The level of $ 3,130 may be the last big fortress for bulls to fight back. But if it fails, it will become clear that the speculative bubble has passed into the terminal stage and long-term shorts will likely be the major play.

Low BTC volatility, prompt calls on the dips and various rally attempts have created the impression for a stable market for a relatively long time, however, the looming storm was indicated by the market capitalization that does not include Bitcoin.

Since May, the market has steadily lost in volume, and over the past two months, the pace has slowed down, which has restrained gloomy sentiments. In addition, large stock exchanges such as Binance cut off the connection with fiat currencies, therefore Bitcoin served as a kind of internal fiat (protective asset) and at times of rout of other digital assets it naturally strengthened in price.

It’s funny, but such a restriction created a transactional demand for bitcoin (demand as means of payment), while other cryptocurrencies performed like goods in our ordinary economy. The only problem is that over time awareness has grown that most of them have neither consumer nor investment value. But the idea or the forced measure to close the cryptocurrency system and make it a real and independent digital economy, with its goods, extended its life for some time.

Cold calculation

Interestingly, despite the stabilization of the price of Bitcoin in the summer at around $ 6,000, the complexity of mining continued to grow. There is evidenced that the hashrate began to decline only in October of this year. In other words, mining efforts increased, while increasing the natural supply of Bitcoin, albeit at a falling rate.

Since mining has operational costs (electricity, air conditioning, etc.), with BTC price stuck in tight ranges and increasing complexity, mining should remain profitable until marginal revenue equals marginal costs. That is, until the moment when the next mined and sold bitcoin will not cover the costs of it.

As envisioned by Satoshi, the mining infrastructure of the miners was to become the technological basis for processing the transactions for which the miners would charge a commission. But the only miscalculation was that Bitcoin won’t be widely adopted as a means of payment, so mining remained mostly speculative all this time and the share of revenue from commissions was low, except for the really active period last year (again speculative).

As I said above, the difficulty of mining is directly proportional to the computational efforts (and electricity!) spent on it. With the fall of the difficulty, the natural increase in supply will slow down, easing the pressure on prices. This is one of the few positive factors. But following the simple reasoning above, the remaining capacity will continue to supply new BTC to the market, trying to pay off or take the last profit.

A speculative supply among other factors will likely lead to the next downward spike in demand. The next portion of capacity will go to junk, which does not pay for itself. Thus, the system sets itself to self-destruction, miners in the struggle for a shrinking profit rate lose the infrastructure necessary for processing transactions. And new ones will likely not be built, while old ones could be sold first.

And here is the sad evidence of what is happening:

https://twitter.com/DoveyWan/status/1064878600594305025

Please note that this material is provided for informational purposes only and should not be considered as investment advice. Trading in the financial markets is very risky.

 

[tickmill-news]

What is the Euro Currently up to?


In the daily chart, the rate of the European currency seems to be staying next to the level of 1.1301. Euro could approach the support level 1.1301 and pull back away from it. In this case, reverse head and shoulders may form. Here we should rely on the candlestick patterns:

A flat and very wide uptrend seems to have formed on the daily chart of American stock index S&P500. The asset will likely pull back from uptrend although it may break it through as well. Such a breakout can lead to a quick and a very strong drop. It will be very important to consider additional signals like Japanese candles, for example:

Cross rate of EUR/GBP is currently testing the broken uptrend therefore it could soon pull back down. It can also pull back to the resistance level 0.9098 that represents a month’s long maximum for this pair:

 

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Divided UK parliament creates risks for fragile Brexit agreements


Asian stocks sank on Friday, because despite the enabling environment for a meaningful dialogue between the leaders of China and the US in Argentina, the escalation of trade war remains on top of the risk list for the markets. Weak corporate reporting in Europe heightened concerns about the growth of the Eurozone, but progress in Brexit does not allow pessimism to outweigh market sentiments.


American markets were closed yesterday on the occasion of Thanksgiving, so trading activity was thin. After opening, Chinese markets pulled local indices down as blue-chip stocks in China declined by more than 2% today.


Shares of Chinese companies seem to be “stuck” in a downtrend, as US tariffs and high debt burdening the corporate sector have become a painful combination of risks for shareholders, causing flight to safer assets, i.e. cash. The growing number of corporate defaults in China suggests that the authorities are yet to find a balance between stability and efficiency and the strengthening of one of the parameters inevitably leads to a deterioration of the other. In the trade confrontation with the United States, the Chinese economy still suffers larger losses than the US, for example, activity indices in the manufacturing sector in China (manufacturing PMI) indicate a decrease in production volumes and a drop in export orders. The October reading showed that the manufacturing sector in China is hardly above the line which divides growth from a downturn.


Seoul’s Kospi fell by 0.6%, Hang Seng, following mainland China, was trading in negative territory. Australian stocks rose 0.5%, but in the weekly perspective they are in the red zone for the second week in a row.


On Thursday, European stocks were under attack as corporate reporting disappointed the market, indicating that, in addition to domestic demand, companies also had problems with external demand. US tariffs have created imbalances in the supply chain and European companies have a harder time selling their products to foreign consumers. Domestic demand continues to be in a dormant state, as the ECB’s easing program has not achieved significant results in stimulating household lending.


A draft on future relations, prepared by British and European diplomats, should have become a sign that the parties are making progress in the process of England’s exit from the EU, but May’s inner-party opposition does not allow any progress in foreign policy to be considered reliable. Especially if there is no political consensus inside the country.


In the foreign exchange market, the pound stabilized slightly above 1.2850, jumping 1 percent on Thursday, amid news that England and the EU presented a draft agreement that describes future relations between the two countries. It became the second document after the draft of Brexit, which brings Britain closer to the exit from the block, a process which has been going on for more than two years. But the documents must be approved in the British Parliament, which is divided into camps and where there are Euro-skeptics and pro-European parties and various opportunists seem to be ready to exchange a voice for a benefit.


Voting in the British Parliament will take place in the second week of December, so until that time the pound is left to wave the volatility, as now there is a fertile environment for rumors.


US stock futures indicate a weak start on Wall Street today.


Please note that this material is provided for informational purposes only and should not be considered as investment advice. Trading in the financial markets is very risky.

 

[tickmill-news]

British Parliament seems ready to agree on one Brexit option – No “Soft” Brexit

Asian markets kicked off the week with moderate growth, futures for US indices also show a little optimism, as investors are preparing for the meeting of Xi and Trump in Argentina, preferring to dodge possible unwelcome outcomses in the safe heavens. A little support is provided by expectations of solid consumer sales in the US during the holiday season, as a counter-argument we can mention the lackluster survey data from U. Michigan, which showed that rush in optimism was probably left in the past.


The meeting between the leaders of China and the United States in Buenos Aires, which will be held this week, and the Fed meeting in December remain the two major market-moving events for December.


The broad MSCI index, which includes Pacific stock indices, rose by 0.7%. Hong Kong and Taiwan led gains, while the Japanese Nikkei gained 0.8%. In China, the Shanghai Composite Index started the week from strengthening, but closed Monday in a small loss trying to defend the psychologically important level of 2500.


During the Asian session, futures for the S&P 500 pulled up by 0.4%, as traders gradually adjust valuation estimates according to potential economic impetus from Black Friday sales.


The S&P 500 fell by 0.66% on Friday or by 10.2% from the annual peak reached on September 20th, amid oil prices falling, which hit the US energy sector. On Friday, the price of WTI approached $50 per barrel – the lowest since October last year. Today, the prices are likely to hold a session in the technical correction; during the Asian session, prices rose by almost 2%. It is expected that with the decline in prices, American oil firms will have to slow down the rate of production, while, Saudi Arabia may make adjustments to its plans to restrict production in December, which it has evasively discussed. Based on this, the news background can gradually be filled with positive rumors and news, and trying to short the oil is very risky, because you can get into a global reversal.


It is noteworthy that the pace of decline in oil prices is comparable to 2008 (almost 21% in just 1 month), so winter will probably be accompanied by a global “cooling down” of inflation, which should be reflected in the speeches of officials of large central banks. In particular, energy prices were an important component of inflation in the eurozone, and the ECB President Mario Draghi had already promised to curb QE, but at the last meeting he gave a signal that the ECB could change its mind.


US President Donald Trump and his Chinese counterpart Xi Jingping are expected to hold informal talks at the G20 summit in Argentina later this month. In my opinion, the leaders of the two countries will still be able to agree on what we can probably find out through easing Trump’s rhetoric on Twitter and more positive messages in Chinese state media. Now that the effect of tax reform is dwindling, the Fed is not going to slow down the pace of rate increases, and the stock market is depressed, the new wave of tariffs will not pass unnoticed by the American economy, and Trump probably understands this. Peter Navarro, the main “hater” of China in the White House, was excluded from the list of those who will attend the meeting, which was an indicative step on the part of the United States that they would try to circumvent sharp corners in negotiations with their Chinese colleagues.


Eurozone activity indices from Markit showed on Friday that services and production slowed down significantly in November. The euro responded with a decline of 0.6% on Friday, stabilizing around 1.1360 on Monday. German bond yields have declined, indicating a growing risk aversion in the market.


The British Pound barely responded to the news that the European Union agreed with the British “best possible” options for Brexit at the summit of EU leaders on Sunday. The market will closely monitor whether the deal will go through the split British Parliament, which will vote on this issue on December 13-14.


Jeremy Powell’s speech at the New York Economic Club is scheduled for Wednesday.


Please note that this material is provided for informational purposes only and should not be considered as investment advice. Trading in the financial markets is very risky.