Asian markets has opened on a positive note following Friday’s US equity markets strong upside reversal. Supporting renewed risk appetite is news that China had allowed exclusion of key US agricultural good from tariffs, lowering worries of escalation between US-China on the 15th.
US massive payroll figures indicated the US economy added 266k (well above the 180K consensus) jobs in November. Annual wage growth rose 3.7%, highlighting the upside potential in inflation considering the 3.5% unemployment rate. Elsewhere, the University of Michigan consumer sentiment rose to 99.2 from 97.0 for December. USD rose after six down sessions while treasuries across the curve sold off. Crude oil continues to firm following OPEC+ surprise deep production cuts by about 500k barrels per day next year (driven by Saudi Arabia demand for higher prices amid the Aramco IPO).
Investors are bracing for a big week with Dec 15th tariffs, FOMC, ECB and UK elections all on the docket. All polls indicate a Boris Johnson Conservative government will secure a comfortable majority on Thursday (75-80% probability of an likely outright majortiy). With a clear similarity to the 2016 US presidential election, voters are less excited about voting for Boris then voting against the opposition Labour Party. This outcome would clear the way for the UK to leave the EU by January 31st, 2020 (soft and hard Brexit remain on the table). A decisive victory for Boris would clear the way for further domestic stocks to outperform based on lower uncertainty, fiscal and monetary stimulus and reduced risk premium. However, there is low confidence in the results of the poll which are keeping the investment “animal spirits” sidelined for now. Around 3 pm Friday morning markets should know the official outcome, so if the polls are correct watch for a rise in GBP following an outright Tory win and for export driven stocks to drop.
