· The dollar headed for its worst week since October on Friday, dragged down by nervousness on trade and hints of weakness in the U.S. economy, with domestic factors leaving the resurgent kiwi and British pound the main beneficiaries.
The safe haven of the Japanese yen and Swiss franc were also in demand as investors fretted that U.S. jobs figures due later in the day may fall short and braced for a week that brings a British election, a U.S. Fed meeting and likely news on trade.
Movements on Friday were accordingly slight in Asian trade, but against a basket of currencies the dollar has dropped every day this week for a cumulative loss of almost 1%.
U.S. President Donald Trump remained upbeat overnight on trade and said talks are “moving right along”.
Markets are unconvinced, with worries stemming from a lack of similar enthusiasm from China.
Chinese officials reiterated their stance that some U.S. tariffs must be rolled back for a deal, something Washington has given no sign of doing.
· The focus on U.S. non-farm payrolls, due at 1330 GMT, comes after dismal data through the week showed weak private payrolls, soft services activity and a shrinking manufacturing sector.
A Reuters poll shows a forecast of 180,000 jobs being added in November, and a miss might have the Fed reconsidering its wait-and-see mode when the committee meets on Tuesday and Wednesday.
This week the greenback has shed 0.8% against the euro, to sit at $1.1106 per euro on Friday. The yen has also firmed by the same margin, last trading at 108.68 per dollar.
The best gains have been won by the soaring kiwi and pound.
The kiwi sat just below a four-month high touched on Thursday at $0.6559, having gained 2% this week as economic indicators have turned positive, reducing the likelihood of monetary easing in February to just 13%.
Sterling climbed to a 2-1/2 year high of 84.28 pence against the euro overnight and has advanced 1.7% against the dollar this week, last trading at $1.3154.
· The US Dollar extended its slump on Thursday as it headed for its worst weekly performance since the middle of October. It has been particularly losing ground against its liquid European counterparts such as the British Pound and Euro. The former has been gaining ground alongside prospects of a UK Conservative majority at next week’s general election. That would raise prospects of passing Boris Johnsons’ Brexit deal.
After all, the December 15 deadline for President Donald Trump to decide on further tariffs against China is nearing. He noted that “we will have to see” and that talks are “moving along well”. Today’s bond auction seems to have reflected some skepticism from investors. Hours after Trump’s comments, reports from the Dow Jones crossed the wires that the two countries remain at odds over the value of agricultural purchases.
US DOLLAR TECHNICAL ANALYSIS
My majors-based US Dollar index accelerated its descent after breaching a rising trend line – as expected. That has brought the Greenback closer to revisiting key rising support from September 2018. The key psychological barrier just under it also includes lows from Junes at 1.2792. If prices fail to breach these boundaries, the USD could be due for a bounce ahead.
· China To Implement Tariff Waivers For Some Purchases Of Soybeans, Pork From US - Xinhua
· In our opinion, investors should not be deceived by any promise of a definitive Trump Trade War settlement. It isn't in the cards. The best outcome is a truce, and even that will be more like a ceasefire. As of this writing, U.S.-China tariff talks continue, and a Phase 1 trade deal is still expected to be passed. Global equities (excluding China, HK) have rallied on improving growth outlooks, assuming that trade talks will lead to a ceasefire and not to the imposition of more Trump tariffs on December 15.
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US financial markets may celebrate a ceasefire as an alternative preferable to an economic shooting war. So, it may be that less tariff shooting is better than more tariff shooting. But we must remember that Trump likes the money from the tariffs. The US is collecting those tariffs from American firms, and the amount they produce is now paying about one-fourth of the interest bill on the US net debt.
Forecast for 2020: There will be no settlement in the Trump Trade War, nor will there be a reduction in China-US tensions. Markets discounting anything more than a ceasefire are making an erroneous assumption.
Dear readers, nothing would please us more than to be wrong with this forecast, but our job is not to base management decisions on hope; it is to base them on realistic assessments. Sometimes realism is more difficult. Hope is not a strategy at Cumberland.
· A modest U.S. economic growth outlook has barely changed despite a majority of economists in a Reuters poll being “reasonably confident” an initial trade deal will be signed with China within the next three months.
Thirty-two of 46 economists who answered an additional question said an interim trade deal between the U.S. and China would be signed within the next three months, seven respondents said 3-6 months and two said in 6-12 months.
Only five contributors said it would take over a year.
· Home sales will drop, the housing shortage could become the worst in U.S. history, and home values will shrink in some cities. That’s the 2020 forecast from realtor.com, which holds one of the largest databases of housing statistics available.
Sales of existing homes will fall 1.8% from 2019, according to the forecast. Home prices will flatten nationally, increasing just 0.8% annually, but prices will fall in a quarter of the 100 largest metropolitan markets, including Chicago, Dallas, Las Vegas, Miami, St. Louis, Detroit and San Francisco.
It is a seemingly contrary assessment, given the current strength of the economy and of homebuyer demand, but the dynamics of this housing market are unlike any other — the result of a housing crash unlike any other.
“Real estate fundamentals remain entangled in a lattice of continuing demand, tight supply and disciplined financial underwriting,” said George Ratiu, senior economist at realtor.com. “Accordingly, 2020 will prove to be the most challenging year for buyers, not because of what they can afford but rather what they can’t find.”
· The euro zone economy has avoided a recession, according to a Reuters poll of economists who were reasonably confident of that outcome, but their growth and inflation outlook remains very modest for the coming years.
While the probability of a recession in the currency bloc over the coming two years held steady at 30% from last month, the various risks which have held back economic growth and inflation have not yet dissipated.
Still, the European Central Bank will in all likelihood do nothing when it meets to set policy on Dec. 12 and also stay on the sidelines for the next two years, the poll showed.
· Japanese households cut their spending for the first time in almost a year in October as a sales tax hike prompted consumers to rein in expenses and natural disasters disrupted business.
Household spending dropped 5.1% in October from a year earlier, government data showed on Friday, down for the first time in 11 months and the biggest fall since March 2016 when spending fell 5.3% and weaker than the median forecast for a 3.0% decline.
· Japanese firms are overwhelmingly expecting the economy to contract after the 2020 Tokyo Olympics following growth in the run-up to the event, prompting a call for fresh fiscal stimulus to support a fragile economy, a Reuters poll showed.
· Oil edged lower on Friday as investors awaited a meeting of OPEC and its allies later in the day which is expected to formally agree to more output curbs in early 2020.
Despite the new cuts, OPEC stopped short of pledging action beyond March and analysts questioned the impact of the latest curbs.
Brent futures LCOc1 were down 10 cents, or 0.2%, at $63.29 by 0730 GMT.
West Texas Intermediate oil futures CLc1 fell 7 cents, or 0.1%, to $58.36 a barrel. They hit $59.12 a barrel on Thursday, the highest since the end of September.
· CRUDE OIL TECHNICAL ANALYSIS
Prices nudged above their daily chart range top on an intraday basis Thursday but bulls have yet to nail down these gains with a close above it.
Given that the substance of OPEC’s plans is now known, it may be a big ask for prices to top that point again before the end of trade Friday. However, crude remains very much driven by its dominant near-term uptrend channel having powered away from its base quite impressively this week.
For as long as support holds at the range base of $57.16/barrel the market’s upward bas seems likely to be maintained.
Reference: Reuters, CNBC, FX Street
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