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Market panorama. 11 December 2018

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I. Market focus

At the beginning of Tuesday’s session, the main theme in the global financial markets continued to be the situation around Brexit. British Prime Minister Theresa May announced on Monday she would delay a vote on the withdrawal agreement she negotiated with the EU, which was scheduled for Tuesday. At the same time, she did not set a new date for the vote. According to the Prime Minister, the delay of the vote is connected with the fact that the agreed Brexit plan does not find support in parliament now. Markets negatively reacted to the postponement of the vote on the Brexit plan, since Teresa May’s lack of support increases the likelihood of a no-deal exit or a political crisis when the current Prime Minister lost a no-confidence vote. It should also be noted that the chances of a second referendum on the exit of the UK from the EU have increased. Earlier, the European Court of Justice ruled that the UK has the power to withdraw its notification to leave the EU under Article 50 of the Lisbon Treaty without the agreement of other member states. While the chances of the second referendum are still less than the odds of a disordered exit, this has a negative effect on the dynamics of the pound.

The uncertainty over Brexit will continue to remain in the focus of market participants in the near future. Against this backdrop, markets may pay less attention to the UK labor market data, set to be released today (09:30 GMT). It is expected that the employment situation in the UK in the last reporting month will remain the same as in the previous period. But if the data turns out to be noticeably weaker than economists’ forecast, the pound may face a new wave of strong sales. At the same time, stronger data is unlikely to be able to provide substantial support to the British currency.

Other important reports will be data on sentiment in the business circles of the EU and Germany (10:00 GMT) and statistics on the producer price index of the U.S. (13:30 GMT).


II. The market highlights are:

The Job Openings and Labor Turnover Survey (JOLTS) published by the Labor Department on Monday showed the U.S. job openings increased slightly in October. According to the report, employers posted 7.079 million job openings in October, compared to the September figure of 6.960 million (revised from 7.009 million in original estimate) and economists’ expectations of 7.220 million. The job openings rate was 4.5 percent in October, up from 4.4 percent in the prior month. The report showed that the number of job openings was little changed for total private and for government. Job openings increased in information (+45,000), real estate and rental and leasing (+38,000), educational services (+20,000), and state and local government education (+17,000). The number of job openings decreased in state and local government, excluding education (-38,000) and transportation, warehousing, and utilities (-33,000).  Meanwhile, the number of hires rose to 5.892 million in October nearly matching its series high in August. The hiring rate was 3.9 percent, up from 3.8 percent in September. The number of hires was little changed for total private and for government. Hires increased in transportation, warehousing, and utilities (+90,000) and durable goods manufacturing (+43,000), but decreased in mining and logging (-11,000). The separation rate in October was at 5.556 million or 3.7 percent, compared to 5.641 million or 3.8 percent in September. Within separations, the quits rate was 2.3 percent (-0.1 pp m-o-m), and the layoffs rate was 1.1 percent (flat m-o-m).


The joint survey, conducted by Japan’s Ministry of Finance and the Economic and Social Research Institute, showed on Monday the Business Sentiment Index (BSI), measuring sentiment among the large Japanese manufacturers, fell in the fourth quarter of 2018. According to the survey, the BSI came in at plus 5.5 this quarter, down from plus 6.5 in the third quarter.


The Australian Bureau of Statistics’ (ABS) report revealed on Tuesday the Australian house prices fell in line with expectations in the third quarter of 2018. The home price index dropped 1.5 percent q-o-q in the three months through September compared to a 0.7 percent decline in the previous quarter.  Economists had expected a fall of 1.5 percent q-o-q. Prices decreased in four of the eight capital cities, with Melbourne (-2.6 percent q-o-q) and Sydney (-1.9 percent q-o-q) leading the decline. ABS Chief Economist Bruce Hockman noted that "Falls in Sydney and Melbourne are no longer confined to the more expensive properties, with declines now being observed in the middle and lower segments of the market. Factors including tightening credit availability and falling property prices are weighing on activity from both investors and owner occupiers". House prices rose 2.0 percent in the September quarter compared with a corresponding period a year earlier. That marked the first annual price fall since the September quarter of 2012.


III. Market Situation
Currency Market

The currency pair EUR/USD traded slightly higher, due to partial profit-taking after the previous day’s drop. The pair was also supported by the downward correction in the U.S. currency. In addition, investors were preparing for the release of the data on sentiment in the business circles of the EU and Germany and the U.S.statistics on the producer price index later today, as well as the U.S. report on consumer inflation tomorrow. The CPI inflation rose in October on the back of higher energy costs, but the boost is expected to be unwound in November. Gasoline prices fell 11 percent over the month and likely offset price hikes in other categories, keeping headline inflation unchanged. Excluding food and energy, inflation is expected to rise 0.2 percent, pushing the year-ago rate back up to 2.2 percent. The dollar’s strength is helping to keep a lid on goods inflation despite recent tariffs, while services inflation has moderated a touch recently amid softer pricing for shelter and medical care. It is expected that a pullback in headline inflation will not affect the Fed’s decision on the rate in December. Resistance level - $1.1471 (high of November 20). Support level - $1.1306 (low of November 30).

The currency pair GBP/USD consolidated near the opening level, as investors took a breather after the previous day’s plunge in the pair, which was caused by reports that British Prime Minister Theresa May postponed the vote on Brexit in the parliament, scheduled for Tuesday. Experts note that the further dynamics of the pound will depend on things happening to the Brexit plan, and the related uncertainties that are of concern from the point of view of investment prospects in the UK. Today, the investors will pay attention to the UK labor market data. However, it is expected that the employment situation in the UK in the last reporting month will remain the same as in the previous period. In addition to the data, traders will focus on the dynamics of the U.S. currency and the general market sentiment toward risky assets. Resistance level - $1.2926 (high of November 22). Support level - $1.2507 (low of December 10).

The currency pair AUD/USD rose moderately, helped by the weakening of the U.S. dollar, higher prices for many commodities, and news that the U.S. and China began the latest round of trade talks with a phone call involving Treasury Secretary Steven Mnuchin, U.S. Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He. However, the further increase in the pair was limited by weak data out of Australia. The Australian Bureau of Statistics’ (ABS) report revealed the Australian house prices fell in line with expectations in the third quarter of 2018. The home price index dropped 1.5 percent q-o-q in the three months through September compared to a 0.7 percent decline in the previous quarter.  Economists had expected a fall of 1.5 percent q-o-q. House prices rose 2.0 percent in the September quarter compared with a corresponding period a year earlier. That marked the first annual price fall since the September quarter of 2012. Meanwhile, the NAB’s monthly survey of business confidence showed business confidence index in Australia fell to 3 in November 2018, the lowest since January 2016, from an upwardly revised figure of 5 in the previous month. It marked the second straight month the index being below its long-run average of 6. Resistance level - AUD0.7241 (high of December 7). Support level - AUD0.7164 (low of November 13).

The currency pair USD/JPY fell at the beginning of the session, but then erased more than half of the losses. The reason for the initial decline in the pair was a partial profit taking after a significant increase the day before. Market participants also estimated data out of Japan, which showed that the orders placed with Japanese machine tool manufacturers tumbled 16.8 percent in November, following a revised 0.7 percent drop in October.  A separate report indicated that the Business Sentiment Index (BSI), measuring sentiment among the large Japanese manufacturers, fell in the fourth quarter of 2018. According to the survey, the BSI came in at plus 5.5 this quarter, down from plus 6.5 in the third quarter. Resistance level - Y113.82 (high of December 3). Support level - Y112.23 (low of December 6 and 10).


Stock Market

Index

Value

Change

S&P

2,637.72

+0.18%

Dow

24,423.26

+0.14%

NASDAQ

7,020.52

+0.74%

Nikkei

21,148.02

-0.34%

Hang Seng

25,771.67

+0.07%

Shanghai

2,594.09

+0.37%

S&P/ASX

5,575.90

+0.42%


U.S. stock indexes closed higher on Monday, helped by a rebound in tech stocks. Focus also was on the Job Openings and Labor Turnover Survey (JOLTS), which showed the U.S. job openings increased slightly in October. According to the report, employers posted 7.079 million job openings in October, compared to the September figure of 6.960 million (revised from 7.009 million in original estimate) and economists’ expectations of 7.220 million. The job openings rate was 4.5 percent in October, up from 4.4 percent in the prior month. Meanwhile, the number of hires rose to 5.892 million in October nearly matching its series high in August. The hiring rate was 3.9 percent, up from 3.8 percent in September. The separation rate in October was at 5.556 million or 3.7 percent, compared to 5.641 million or 3.8 percent in September.

Asian stock indexes closed mostly higher on Tuesday, responding to positive signals from Wall Street and report that the U.S. and China started the latest round of trade talks. Japan’s Nikkei fell, as the yen firmed against the U.S. dollar, putting pressure on the Japanese export-oriented companies.

European stock indexes are expected to trade higher in the morning trading session.


Bond Market
Yields of US 10-year notes hold at 2.86% (0 basis points)
Yields of German 10-year bonds hold at 0.25% (0 basis points)
Yields of UK 10-year gilts hold at 1.06% (0 basis points)

Commodity Markets
Light Sweet Crude Oil (WTI) futures
traded lower. Crude oil for delivery in January settled at $51.02 (+0.04%). The crude oil prices consolidated near the opening level, following yesterday's 3 percent drop. Some support for the oil prices was provided by reports that Libya's National Oil Corporation declared force majeure on exports from the El Sharara oilfield, which was seized at the weekend by a local militia group. Market participants were also preparing for the release of data on oil inventories in the U.S. Today, the American Petroleum Institute (API) will publish its weekly data on the U.S. crude oil stockpiles. Tomorrow, the focus will be on official report on crude inventories in the U.S. from the U.S. Energy Information Administration (EIA).

Gold traded at $1,247.10 (+0.22%). Gold prices rose slightly due to the negative dynamics of the U.S. currency. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, fell 0.09 percent to 97.13. Since gold prices are tied to the dollar, a weaker dollar makes the precious metal cheaper for holders of foreign currencies.


IV. The most important scheduled events (time GMT 0)


09:30

United Kingdom

Average earnings ex bonuses

09:30

United Kingdom

Average Earnings

09:30

United Kingdom

ILO Unemployment Rate

09:30

United Kingdom

Claimant count

10:00

Eurozone

ZEW Economic Sentiment

10:00

Germany

ZEW Survey - Economic Sentiment

13:30

U.S.

PPI

13:30

U.S.

PPI excluding food and energy

19:15

New Zealand

RBNZ Gov Orr Speaks

23:30

Australia

Westpac Consumer Confidence

23:50

Japan

Core Machinery Orders



Market Focus

  • UK gross domestic product (GDP) grew by 0.4% in the three months to October
  • In December, the sentix overall index for the economy in Euro Area falls for the 4th time in a row to -0.3
  • St. Louis Fed Chief James Bullard Suggests Fed Hold Rates Steady
  • Fed's Brainard: Gradual Rate Increases Still Appropriate 'In the Near Term'
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All posted material is a marketing communication solely for informational purposes and reliance on this may lead to loss. Past performance is not a reliable indicator of future results. Please read our full disclaimer.

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