CFD Markets News and Forecasts — 31-12-2019

U.S. stock-index futures fell slightly on Tuesday after retreating from record highs in the previous session, as a rally, boosted by optimism around U.S.-China trade progress, cooled off in the final days of the year.

Global Stocks:

(company / ticker / price / change ($/%) / volume)

Walmart (WMT) target raised to $130 from $125 at Morgan Stanley

Advanced Micro (AMD) target raised to $65 from $52 at Rosenblatt

NVIDIA (NVDA) target raised to $275 from $240 at The Benchmark Company

Analysts at ABN AMRO note that Germany has only just avoided a recession over the past few quarters.

• "GDP growth increased by 0.1% qoq in 2019Q3 on the back of higher household and government spending. The Q2 results were revised down from -0.1% to -0.2%, while the Q1 results were revised up from 0.4% to 0.5%. Meanwhile, the Dutch economy printed 0.4% growth in all three quarters of this year.
• In 2018, the Dutch economy also outperformed that of its eastern neighbour by over 1%. While Germany grew by 1.5%, Dutch GDP surged by 2.6% in 2018. There appears to be a divergence in growth between the two economies, as the Dutch economy continues to outperform Germany. Why? Compared to the Netherlands, Germany has been hit relatively hard since the start of 2018 by the weakness in global trade, the decline in global industrial production and the slowdown in global fixed investment growth. This is because of the difference in export destinations and the difference in export partners of the German and Dutch economies."

Analysts at ANZ note that the Asian currencies were hit by escalating U.S.-China trade tensions and a sharp slowdown in economic activity in 2019, but the outlook for 2020 looks more promising, as the headwinds fade.

• "While there will be underlying tensions between the US and China even if the 'phase one' deal is eventually signed, we are unlikely to see the sudden unexpected tariff escalations that roiled markets earlier this year.
• The current recovery in the global tech cycle points to an improvement in the region's exports over the first half of 2020. The substantial monetary policy easing by the region's central banks this year should also help support growth next year.
• We forecast a modest weakening in CNY to 7.15 by the end of 2020, as the Chinese economy continues to slow, the current account surplus narrows and onshore demand for dollars stays strong for debt repayment.
• We are most constructive on THB, TWD, and PHP. We see IDR remaining an attractive carry play given its high yield and stable macroeconomic fundamentals, while INR will underperform given the weak growth outlook and the RBI's preference for a competitive exchange rate.
• SGD and KRW should benefit from the turn in the tech cycle, but weakness in their domestic economies will limit how far both currencies can gain. Persistent trade surpluses and strong FDI inflows will support the VND."

Michael Gordon, the senior economist at Westpac, notes that the New Zealand economy grew by 0.7% in the September quarter and while this was ahead of market forecasts, the annual revisions to the GDP data have made it trickier to interpret the recent results.

• "New Zealand's GDP rose by 0.7% in the September quarter, beating market forecasts of a 0.5% rise. However, that followed a heavily downwardly revised June quarter result (down from 0.5% to 0.1%). Indeed, the annual round of revisions to the GDP figures have altered the recent path of growth significantly, making it somewhat harder to interpret.
• GDP has been revised up substantially over 2018 - growth for the calendar year has risen from 2.9% to 3.2%. This means that the pace of growth held steady over that year, rather than slowing as the previous figures indicated. In contrast, growth in the first half of this year is much weaker than previously reported (although that result will itself be tested in next year's revisions).
• The revisions to history - and the upside surprise for the September quarter - appear to be due more to changes in the composition of GDP, rather than significant changes in any particular industries. The revisions have also created a more volatile quarterly path for GDP, with growth swinging between 1% in the December 2018 quarter to 0.1% in the June 2019 quarter (the previously reported figures were 0.7% and 0.5% respectively)."

Richard Franulovich, the head of FX strategy at Westpac, notes the last Fed meeting of the year was mostly notable for Powell’s ongoing attempts to recast the Fed’s reaction function.

“The chair repeated the very high bar for hikes - a “significant” and “persistent” move up in inflation - and downplayed the analogy of the ’98 insurance cuts, citing structural differences in inflation as the key reason they won’t be reversed as quickly. Powell also seemed to tip his hat to the dovish wing, citing several officials who have embraced an inflation overshoot as ‘appropriate policy”.

The USD may be overplaying the newsworthiness of the Fed’s dovish message but regardless, the overarching background is turning less dollar supportive.

DXY seems vulnerable to a break of key support at 97.10 near term.”

China's foreign ministry offers no comment on Liu He's travelling to Washington this week

The Chinese foreign ministry spokesman made no official statement on whether the country's Vice Premier Liu He, its top trade negotiator, is visiting the U.S. this week.

The South China Morning Post (SCMP) reported yesterday, citing the source, who declined to be named due to the highly sensitive nature of the information, that Liu He is to visit Washington this week to sign a phase one deal that would significantly de-escalate the U.S.-China trade war.

Gold pushed deeper into the $1,500s in a concerted year-end rally as the dollar hit a six-month low. The jump came against a backdrop of record equity prices, easing trade tensions, and a warning from JPMorgan Asset Management that bullion may not offer sound portfolio protection.

Prices climbed for the sixth time in seven sessions, with the traditional haven set for the biggest annual gain since 2010. Gold is poised to close out a fifth quarter of gains, a feat that the commodity hasn't managed since 2011.

Gold has found renewed favor this month as investors position their portfolios for 2020. The White House's leading China hawk, trade adviser Peter Navarro, said a preliminary trade deal with Beijing is completed, potentially easing a source of tension. With global stocks near a record, and the Fed on alert to police any end-of-year funding squeeze, JPMorgan said some of gold's strength may have come from investors seeking protection against a potential sell-off -- something that it counseled against.

"People are starting to question how much further they have to run after that stellar 2019," Hannah Anderson, a global market strategist at JPMorgan, told Bloomberg TV, referring to gains in equities and fixed income. "Some investors are starting to wonder if gold is going to be the safety for their portfolio. Personally, I think investors probably want to rethink that consideration."

China's outbound mergers and acquisitions (M&As) clocked their weakest year in a decade in 2019, as an escalated U.S.-China trade war and tightened regulatory scrutiny of Chinese companies impacted appetite for overseas dealmaking.

Chinese acquirers announced $41 billion in outbound deals this year, nearly halving from 2018 and less than a fifth of the 2016 peak, showed data from Refinitiv. The number was only slightly higher than 2009 when dealmaking plunged after the financial crisis.

Outbound deals into the United States dropped 80% this year from last to $2 billion. The fall came in a year in which the U.S. Committee on Foreign Investment, which reviews deals by foreign acquirers for potential national security risks, started to retrospectively review deals.

At home, Chinese companies - which used to borrow heavily to fund overseas purchases - are under pressure to cut debt as economic growth slows and capital controls remain tight.

In view of analysts at ABN AMRO, GDP growth in Germany is expected to pick up in 2020.

"Exports should regain strength around the start of the year, but we do not foresee a spectacular rebound. Importantly, we think that foreign trade and the global industrial sector are currently bottoming out, although the improvement is likely to remain rather lacklustre. In fact, global fiscal and monetary policy stimulus has been rather modest since the start of the global slowdown in early 2018 and is not expected to result in a sharp rebound of the global economy. Moreover, uncertainty related to the trade conflict continues to weigh on the global economy. With respect to Germany's domestic demand, we expect fixed investment to remain weak for a while, as a delayed result of the contraction in the industrial sector and weaker profit growth. Private and government consumption, however, should grow solidly as both are supported by real wage growth and expansionary fiscal policy. We expect 0.6% yoy growth in 2020 and 1.5% yoy growth in 2021."

Britain's national minimum wage will rise by more than 6% next year, taking it to 8.74 pounds ($11.49) an hour, the government announced on Tuesday.

The move puts Britain on track to meet its target for the minimum wage to reach 60% of median earnings by 2020, it added.

Britain's unemployment rate has fallen to its lowest since the 1970s and employment recently hit a record high, despite the minimum wage rising by more than a quarter since 2015 to now stand at 8.21 pounds an hour for those aged 25 and over. The rise to 8.74 pounds is due to take place on April 1.

Minimum pay rates for younger workers will also increase by between 4.6% and 6.5%, depending on their age, the government said.

The British Chambers of Commerce (BCC) said: "Raising wage floors by more than double the rate of inflation will pile further pressure on cash flow and eat into training and investment budgets.

"For this policy to be sustainable, government must offset these costs by reducing others - and impose a moratorium on any further upfront costs for business."

China's Shanghai Composite is on pace to finish its best year since 2014. The index was up 0.1% on Tuesday, and is up 22% this year. That's the best performance since the index recorded a 53% gain five years ago. That also makes it the year's top performer among major Asian stock indexes.

It's been a volatile year for Chinese stocks as the economy slows and as the US-China trade war has yet to reach a conclusion.

Stocks did surge in the first quarter, aided by the People's Bank of China's steps to boost economic growth and Beijing's efforts to open up its financial markets. Trade tensions later caused the Shanghai index to fall for two consecutive quarters before it recovered losses in the home stretch of 2019.

Hong Kong's Hang Seng Index (HSI), which dropped 0.5% on Tuesday, is also poised to rise this year - albeit by a smaller 9%. Hong Kong markets were rattled by the trade war and by the city's ongoing protests, but that hasn't been enough to erase gains entirely.

Both markets will be closed Wednesday for the New Year holiday.

According to the report from National Bureau of Statistics, growth in China's services sector activity cooled in December.

The official services PMI slipped to 53.5, from an eight-month high of 54.4 in November. Economists had expected a decline to 53.6. The 50-point mark separates growth from contraction on a monthly basis.

Beijing has been counting on a strong services sector to help offset prolonged weakness in manufacturing, which has been weighed down by weak domestic and global demand and the protracted U.S.-China trade war. Economic growth has slowed to near 30-year lows.

The report also showed that manufacturing activity in China expanded for a second straight month in December as seasonal demand and signs of progress in trade talks with Washington boosted factories' output and order books.

China's official PMI was unchanged at 50.2 in December from November, slightly higher than the 50.1 expected.

The official December composite PMI, which includes both manufacturing and services activity, fell to 53.4 from November's 53.7.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1307 (3829)

$1.1275 (3281)

$1.1260 (5393)

Price at time of writing this review: $1.1205

Support levels (open interest**, contracts):

$1.1149 (3057)

$1.1100 (4776)

$1.1050 (3654)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date January, 3 is 59068 contracts (according to data from December, 30) with the maximum number of contracts with strike price $1,1200 (5393);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3226 (3911)

$1.3195 (877)

$1.3172 (1431)

Price at time of writing this review: $1.3115

Support levels (open interest**, contracts):

$1.3071 (527)

$1.3035 (870)

$1.2992 (1924)

Comments:

- Overall open interest on the CALL options with the expiration date January, 3 is 26646 contracts, with the maximum number of contracts with strike price $1,3400 (4321);

- Overall open interest on the PUT options with the expiration date January, 3 is 28426 contracts, with the maximum number of contracts with strike price $1,2500 (2270);

- The ratio of PUT/CALL was 1.07 versus 1.05 from the previous trading day according to data from December, 30

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.