It’s only fitting that the biggest geopolitical event of 2018, the US-China trade war, is also the defining factor setting the market mood on the last day of trading, and after Trump’s Saturday tweet that U.S.-China negotiations were “moving along very well” toward a comprehensive deal, global stocks and US equity futures are a sea of green.
The euphoria returned, however briefly, even though the WSJ warned to take Trump’s tweet with a grain of salt, especially since given the market volatility Trump is liable to be exaggerating the chances of a deal, especially since trade optimism is expected to boost markets, Trump’s favorite “barometer” of his administration.
… people familiar with the state of negotiations said the president may be overstating how close the two sides are to an agreement. They note Mr. Trump has looked to calm markets, which have gyrated in recent days, in part, because of concern that the trade fight between the US and China could spin out of control.
The tweet also followed a Friday CNBC report that the White House had spoken with a prominent hedge fund investor how to halt the market rout, who responded that the president should end his criticism of Powell on Twitter, stop administration turnover and reach a trade deal with China in order to help markets.
Despite the now traditional caution surrounding any Trump tweet, Emini futures were up 0.8%, trading back over 2,500, if below Friday’s highs as at least some shorts were spooked that this time Trump may be telling the truth.
“Market seems to take quite well to the Trump tweets that we got over the weekend,” said Kyle Rodda, an analyst at IG Group Holdings Plc. While the move is likely exaggerated given low holiday trading volumes “it’s certainly indicative of the overall sentiment with one day to go in the year,” he said.
It wasn’t just the US as world stock and commodity prices rose on Monday as the weekend’s hints of progress on the Sino-U.S. trade standoff provided a rare glimmer of optimism in what has been a punishing end of year for markets globally.
Europe’s Stoxx 600 index climbed for a second day, as much as 0.4 percent, trimming its annual decline and following a strong lead by Asia. The rebound, however, will be little comfort for the European index which is on course for a drop of about 13%, its biggest loss since 2008. Miners and retailers led Monday’s advance with hopes around trade rising again, while the euro held steady after Italy’s government won final parliamentary approval for its 2019 budget.
London’s FTSE and Paris’ CAC 40 climbed 0.2 and 0.7% respectively on the day but both are down more than 11% in 2018. Ironically, it was Germany’s export-heavy DAX, that has seen more than 18% wiped off its value, one of Europe’s worst performing markets this year.
Top European News
- Italy’s Populists Pass Budget After Weeks of Market Turmoil
- Nokia Names Sandra D. Motley as President of Fixed Networks
- Gas Blast in Russia Apartment Block Kills 3 People, Many Missing
- Italy’s doBank Buys Majority Stake in Debt Servicer Altamira
Earlier, Asian stocks closed up 0.5%, with the Shanghai Composite rising 0.4% to close off a dismal year for the stock index, despite the latest disappointing print in the Chinese Manufacturing PMI as survey data showed manufacturing activity contracting for the first time in two years even as the service sector improved.
Another of the year’s the worst performers was the index of major Chinese companies which lost a quarter of its value. The only major Asian market in the black for the year was India, where the BSE was ahead by almost 6 percent.
MSCI’s broadest index of Asia-Pacific shares outside Japan closed up 0.6%, but was still down 16% for the year.
Top Asian News
- China Slowdown Deepens as Trade Truce Fails to Revive Factories
- China Dec. Manufacturing PMI at 49.4; Est. 50.0
- Rebound in 2019 Not Easy for India Bonds, Scrapped Sales Suggest
- Assets Rise as Trump Fuels U.S.-China Trade Optimism: Inside EM
Investor sentiment brightened when U.S. President Donald Trump said he held a “very good call” with China’s President Xi Jinping on Saturday to discuss trade and claimed “big progress” was being made. However, Chinese state media were more reserved, saying Xi hoped the negotiating teams could meet each other half way and reach an agreement that was mutually beneficial.
“Simply looking at the markets would suggest that the global economy is headed into recession,” said Robert Michele, chief investment officer and head of fixed income at J.P. Morgan Asset Management.
“However, while we agree the global economy is in a growth slowdown, we don’t see an impending recession,” he added, looking at the Fed to provide a policy cushion. “Already, commentary out of the Fed suggests that it is nearing the end of a three-year journey to normalise policy.”
Indeed, as noted last night, Fed fund futures have priced out any hike for next year and now imply a quarter point cut by mid-2020, even as Goldman still expects at least one rate hike in 2019.
At the same time, the Treasury market clearly thinks the Fed is done on hikes, with yields on two-year paper having fallen to just 2.52% from a peak of 2.977% in November. The Treasury market is heading for its biggest monthly rally in 2-1/2 years.
The precipitous drop in yields has undermined the U.S. dollar in recent weeks. The dollar is on track to end December with a loss of 0.8 percent but was still up on the year as a whole. Overnight, the Bloomberg Dollar Spot Index fell for a third day and headed for its steepest monthly drop since March, as the U.S. government shutdown continued into its tenth day.
The dollar also had a tough month against the yen with a loss of 2.8 percent this month, and was last trading at 110.14. However, 2018 was a pretty stable year for the pair given it spent all of it in a narrow trading range of 104.55 to 114.54.
Elsewhere, the euro is on track to end the month on a weaker note at $1.1425, nursing losses of almost 5% over the year to date.
That was a walk in the park compared with the hit oil prices have taken in the last couple of months, with Brent down almost 40% since its peak in October when Goldman was pounding the table on oil telling its clients oil was a screaming buy.
Brent rose 98 cents at $54.20 a barrel but was down 20% for the year. U.S. crude futures nudged up 62 cents to $45.95.
Meanwhile the only real safe haven, gold, is ending the year on a high note after rallying almost 5 percent in the past month to stand at $1,278.57 an ounce.
Market Snapshot
- S&P 500 futures up 0.8% to 2,505.50
- Brent Futures up 1.8% to $54.14/bbl
- Gold spot up 0.09% to $1,281.90
- U.S. Dollar Index down 0.1% to 96.30
- STOXX Europe 600 up 0.3% to 337.12
- MXAP up 0.5% to 146.72
- MXAPJ up 0.6% to 478.32
- Nikkei down 0.3% to 20,014.77
- Topix down 0.5% to 1,494.09
- Hang Seng Index up 1.3% to 25,845.70
- Shanghai Composite up 0.4% to 2,493.90
- Sensex up 0.05% to 36,093.05
- Australia S&P/ASX 200 down 0.1% to 5,646.40
- Kospi up 0.6% to 2,041.04
- German 10Y yield rose 1.1 bps to 0.242%
- Euro down 0.02% to $1.1442
- Brent Futures up 1.8% to $54.14/bbl
- Italian 10Y yield fell 0.5 bps to 2.384%
- Spanish 10Y yield rose 3.0 bps to 1.416%
Top Overnight News from Bloomberg
- President Donald Trump reported “big progress” in trade talks with his Chinese counterpart Xi Jinping, providing an optimistic start to what could be a make-or-break year for ties between the world’s two largest economies
- Gold is closing out 2018 on a strong note, with haven demand in the ascendant amid volatile trading in global equities, rising concern about the economic outlook and a drawn-out government shutdown in the U.S.
- The five presidents of the European Union used the euro’s 20th birthday to praise the single currency’s successes, while warning that the job isn’t yet complete
- Oil extended gains Monday on reports of the progress in trade talks
- China heads into the new year with its factories back in contractionary territory as the trade war damps sentiment
- A compromise between Trump and congressional Democrats to end a partial government shutdown could hinge on the definition of “wall” — what kind of physical barrier or other border security measures are acceptable to both sides
- The CEOs of some of Germany’s biggest companies are bracing for a difficult year in 2019 as trade conflicts, Brexit and political division could weigh on the economy, according to Bild-Zeitung
- Five presidents of the European Union used the euro’s 20th birthday to praise the currency’s successes, while saying the job isn’t yet complete
US Event Calendar
- 10:30am: Dallas Fed Manf. Activity, est. 15, prior 17.6
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