Equity markets rose on the last trading day of the year. In Hong Kong, Hang Seng Index was up 1.2%, the S&P/ASX200 index closed 7.9 points, or 0.14 per cent down, at 5645.0. The ASX index has lost 9.04% since September – the worst quarter since September 2011 – with the benchmark also enduring its worst year in seven years, down 6.9%. In Tokyo, Nikkei 225 was closed for a holiday having ended the year with a loss of 12%.
In the US, Dow Jones lost 1,656.82 points, or 6.7% for 2018, the biggest one-year percentage decline since 2008, while for the quarter a loss of 12.83% is the worst since the first quarter of 2009. A monthly loss of 9.7% makes it the worst December since 1931 for the Dow Jones and the biggest one-month percentage decline since February 2009. The S&P 500 is off 10% for December, its worst month since February 2009. That left it down 15% for the quarter and 7% for the year.
On the Lookout: US President Donald Trump said on Twitter on Saturday that he had a”long and very good call” [on trade] with China’s President Xi. China reported factory activity fell more than expected in November, hitting a more-that-two-year low, and suggesting a contraction in manufacturing. Economists at Danske Bank expect the global expansion to continue but at a slower pace in coming years in light of a maturing global business cycle, but macro data have disappointed lately, raising growth concerns and weighing on risk assets.
“Our quantitative business-cycle model now signals that the global economy is likely to remain in the so-called ‘red quadrant’ (cyclical downturn phase) for longer. This is not usually an attractive environment for FX carry trades. However, there is a risk of a ‘tail wagging the dog’ effect, i.e., when sentiments indicators stabilise, so might confidence indicators and growth. Thus selective carry trades may be attractive.”
“We note that FX carry trades tend to perform in the so-called ‘blue quadrant’ (recovery) and suffer in ‘red’. Still, this year, the G10 carry space has performed relatively well, mainly due to a strong dollar performance.”
“We reckon that, in the absence of a more severe deterioration of risk appetite, G10 carry could continue to do well in the coming months on the back on continued USD support – even if our fundamental view is that USD overvaluation should eventually reverse.”
Markets close on Tuesday.
Trading Outlook: Gold consolidates at six-month highs at $1281 per ounce, after gaining more than 5 percent in December. The precious metal now targets the round 1300 figure amid worries of global economic slowdown and further turbulence in the markets.
EURUSD is trading in a narrow trading range in thin markets between the daily low in Asian session of 1.1421 and 1.1449 European session high. The momentum is positive for the pair as it is trading above the 50 and 100 hours moving average. 1.1480 is the immediate resistance while on the flipside first support will be found at the daily low of 1.1420.
GBPUSD has improved technical picture after the pair broke above the 1.27 area. The 50-day moving average is the resistance at 1.2790 while support can be found at 1.2650. A hard Brexit is still a possibility, and that is preventing most long-term bullish bets on the pair from just being placed. British PM Theresa May appears poised to lose the vote in Parliament on the week of January 14th.