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Market panorama. 3 January 2019

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I. Market focus

The first Thursday of 2019 in the financial markets of the world began with a sharp strengthening of the yen against other currencies. In particular, the yen rose by almost 3 percent against the dollar, with the USD/JPY rate reaching its lowest level since April last year. Given that Japan’s markets are closed for a holiday, as well as the lack of interest in the country's authorities in the strong growth of the national currency, the reason for the growth of the yen could not be any action by the Bank of Japan (BoJ). The purchases in the yen were triggered by the increase in demand for relatively safe assets, which traditionally include the Japanese currency after Apple (AAPL) lowered its revenue outlook. Apple announced about a cut in sales forecast for the first quarter of the 2019 fiscal year on Wednesday after the bell. The estimate was lowered from $91 billion to $84 billion. It should be noted that the previous revenue forecast was announced only two months ago. Apple attributed the lowered guidance to trade tensions between the U.S. and China. “While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China,” said company head Tim Cook. It was also noted that the PRC economy began to slow in the second half of 2018, and its growth rate during the September quarter was the second lowest in the last 25 years. As a result, Apple (AAP) shares tumbled more than 7 percent in after-hours trading, falling to their lowest levels since the summer of 2017.

Concerns of market participants regarding the negative impact of the US-China trade war on the global economy have somewhat weakened recently, as many expected progress in negotiations between the two countries. Apple’s reduction in revenue outlook and the statements by its CEO about the reasons for the estimate cut triggered a new wave of risk aversion. Against this backdrop, the gold price also increased, along with the yen. Meanwhile, New Zealand and Australian dollars plummeted. It should be noted that the scale of the morning movement was partly due to low trading volumes as financial markets in Japan were shut. By the beginning of the European session, the yen, as well as the Australian and New Zealand dollars, corrected partially after the morning movements, but the negative sentiment today is likely to continue to predominate in the markets.

Today, the main scheduled events will be the U.S. data on employment in the private sector from the ADP (13:15 GMT), as well as the ISM report on activity in the manufacturing sector of the U.S. economy (15:00 GMT). Both reports may have a significant impact on government employment data, which will be published tomorrow.


II. The market highlights are:

Final data released by IHS Markit showed Wednesday activity growth in the U.S. manufacturing sector improved at the slowest rate for 15 months. The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers’ Index (PMI) posted 53.8 in December, down from 55.3 in November. Economists had expected the reading to come in at 53.9. The latest reading pointed to the weakest pace of expansion in the manufacturing sector since September 2017. A reading above 50 signals an expansion in activity, while a reading below this level signals a contraction. According to the report, December’s fall in headline reading was attributable to a weaker rise in new business and the joint-softest expansion in output since September 2017. At the same time, the pace of job creation eased to an 18-month low, despite a further rise in backlogs, while business confidence among manufacturers fell dropped to the lowest since October 2016.


III. Market Situation
Currency Market

The currency pair EUR/USD dropped sharply at the beginning of the session, reaching a low of December 17, but then recovered all losses, and started trading with a moderate increase. The pair was supported by the broad weakening of the U.S. currency, partly due to heightened investor doubts about the possibility of the Fed raising interest rates in 2019. This indicated that their confidence in the continued growth of the U.S. economy at a steady pace weakened. Today, the attention of market participants will be drawn to the releases of the U.S. employment data from ADP and the ISM's U.S. manufacturing PMI. Resistance level - $1.1484 (high of December 20). Support level - $1.1267 (low of November 28).

The currency pair GBP/USD dropped more than 200 points at the beginning of the session and reached its lowest level since mid-April 2017. However, the pair quickly recovered, reducing its decrease to only 50 points. The decline in the pair was caused by the flight of investors from risks due to concerns about the negative impact of the U.S.-China trade war on the global economy. Meanwhile, the sharp recovery in the pair was due to partial profit-taking and the triggering of purchase orders. Investors also adjusted their positions ahead of the publication of the PMI index for the UK construction sector. It is expected that the index fell to 52.9 in December from 53.4 in November. However, if the data will be better than forecast, the pair is unlikely to grow due to continuing risk flights. Resistance level - $1.2815 (high of December 31). Support level - $1.2400 (psychological level).

The currency pair AUD/USD fell significantly but quickly recovered, cutting losses to 40 points. The catalysts for the pair’s drop were the steep decline in the cross-pair AUD/JPY and the news that Apple (AAPL) reported weak sales of its products in China. China is Australia's largest export market, in particular, for commodities. The Australian dollar also continued to be pressured by Chinese data, which were released on Monday. The National Bureau of Statistics (NBS)  reported the official PMI for China’s manufacturing sector unexpectedly dropped to 49.4 in December from 50.0 in November, reaching its lowest level since February 2016. Economists had expected the index to come in at 49.9. The data provided another sign that the Chinese economy is suffering from weak domestic demand, a slowdown in global GDP growth and a continuing trade conflict with the United States. Resistance level - AUD0.7078 (high of December 27). Support level - AUD0.6900 (psychological level).

The currency pair USD/JPY demonstrated a significant decline, as demand for the yen, which is considered a safe haven, increased amid rising concerns about global economic growth, the partial U.S. government shutdown and the prospects of a slowdown of Fed's current monetary policy tightening cycle. It should also be noted that the scale of the strengthening of the yen was partly due to low trading volumes as financial markets in Japan were closed. Resistance level - Y110.47 (high of December 31). Support level - Y105.00 (psychological level).


Stock Market

Index

Value

Change

S&P

2,510.03

+0.13%

Dow

23,346.24

+0.08%

NASDAQ

6,665.94

+0.46%

Nikkei

-

-

Hang Seng

25,064.36

-0.26%

Shanghai

2,464.36

-0.04%

S&P/ASX

5,633.40

+1.36%


U.S. stock indexes closed slightly higher on Wednesday, underpinned by gains in the conglomerates' sector and basic materials stocks. Some support was provided by the statements of the U.S. President Donald Trump, who said that there was a "glitch" in the stock market last month, but that equities should recover as the U.S. completes trade deals with countries like China. At the same time, the market sentiment was weighed down by weak economic data from China, which reminded investors that a slowing Chinese economy could adversely impact global growth and corporate earnings growth. The latest data revealed a contraction in China's manufacturing sector for the first time since May 2017. China's Markit Manufacturing Purchasing Managers' Index (PMI) for December dipped to 49.7 from 50.2 in November. In the U.S., the IHS Markit manufacturing PMI slipped to a 15-month low in December.

Asian stock indexes closed mostly lower on Thursday, as a cut in sales outlook by Apple Inc. (AAPL) added to global growth concerns. The Australian equity market outperformed helped by gains in stocks of oil producers.  

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


Bond Market
Yields of US 10-year notes hold at 2.63% (+1 basis points)
Yields of German 10-year bonds hold at 0.16% (-1 basis points)
Yields of UK 10-year gilts hold at 1.08% (0 basis points)

Commodity Markets
Light Sweet Crude Oil (WTI) futures traded sharply lower. Crude oil for delivery in February settled at $45.63 (-1.96%). The crude oil prices fell steeply, correcting after the recent rally. Investors were also preparing for the release of the 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 $1,290.50 (+0.49%). Gold prices rose moderately, helped by a fall in the U.S. currency. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, dropped 0.32 percent to 96.51. 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)


08:30

Switzerland

Manufacturing PMI

09:00

Eurozone

Private Loans

09:00

Eurozone

M3 money supply, adjusted

09:30

United Kingdom

PMI Construction

13:15

U.S.

ADP Employment Report

13:30

U.S.

Continuing Jobless Claims

13:30

U.S.

Initial Jobless Claims

15:00

U.S.

ISM Manufacturing

20:00

U.S.

Total Vehicle Sales




Market Focus

  • Saudi Energy Min Says Concerned About Recent Volatilities
  • Industrial production fell by 1.7% in the euro area (EA19) and by 1.3% in the EU28 m/m
  • China's exports and imports in December declined at the worst rates in two years
  • Earnings Season in U.S.: Major Reports of the Week
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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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