The US dollar is on the backfoot at the end of the year as the trade truce between the US and China has opened the risk appetite flood gates. Risk aversion had limited gains in global stock markets and currencies. The optimism around a phase 1 deal is still high, but more details should be coming in the new year to see how “limited” the agreement really is.
Gold is back above $1,500 to close out the year as dollar weakness and demand for bullion pushed the yellow metal higher. Higher risk appetite and signs of a trade truce put pressure on gold, but with Brexit and the US presidential elections awaiting in 2020 there will be demand for a safe haven.
The Loonie Got its Groove Back
The Canadian dollar had a standout year in 2019 and will be the biggest winner against the dollar. The rate differential has favoured the loonie as the Bank of Canada stood on hold as the Fed cut three times this year. Crude prices improved after Beijing and Washington made peace and the OPEP+ added even more stability by extending and further limiting production.
Oil prices are higher after trade between the two largest economies is now on the mend. The actions of the OPEP+ to drop production even further has boosted prices, even as countries who are not part of the agreement will look to reap the benefits.
With markets in Christmas slumber-mode, there aren’t too many risk points for Asia next week.
Hong Kong
The run-up to the Christmas season has been quiet on the protest front, and is likely to continue like that until January.
As the economy plunges deeper and deeper into recession, there is a risk that clashes could spring up among the rising unemployed (the unemployment rate rose to a 2-1/2 year high this month) and anti-government protestors. The US-China trade truce might offer a chance for the economy to rebound a touch. November’s retail sales data due on Friday January 3 are not expected to overwhelm.
Risk
As always, there is the risk that protests turn violent again, which would be negative for the HK33 index and could push USD/HKD back to the upper half of the trading band.
China
Nothing much to report now that the Phase 1 trade deal is agreed in principle, barring any unforeseen setbacks. Expectations are that it will be ratified/signed in the second half on January. There are no more data points until the December PMIs are released on New Years Eve.
Risk
Any back-tracking on the Phase 1 details would be negative for risk, hurt the CN50 index and boost USD/CNH.
India
Nothing to report until next year.
Risk
n/a
Australia
It’s almost certain that the RBA is on hold until at least the second half of 2020, barring any sudden downturn in economic data. Wildfires raging in New South Wales could hit economic activity for this quarter. Manufacturing PMI data are due on January 2.
Risk
Any severe downward bias to AU data would be detrimental to local equities and the AUD, positive for bonds.
New Zealand
Very quiet for the next week.
Japan
Japan markets are closed January 1-3, so there isn’t likely to be much activity.
Monday, December 30
- 10:45am USD Chicago PMI
- 9:00pm CNY Manufacturing PMI
- 9:00pm CNY Non-Manufacturing PMI
Tuesday, December 31
- 11:00am USD CB Consumer Confidence
Wednesday, Jan 1
- 9:45pm CNY Caixin Manufacturing PMI
Thursday,Jan 2
- 5:30am GBP Final Manufacturing PMI
Friday, Jan 3
- 11:00am USD ISM Manufacturing PMI
- 12:00pm USD Crude Oil Inventories
- 3:00pm USD FOMC Meeting Minutes
