Global Equity Markets Dovish Over Weak Macro Data

Global Equity markets which saw considerable positive price action this week have suffered significant downward price action on last trading session of the week pressured by geopolitical woes and weak macroeconomic data which hints at a global economic slowdown.

Summary: Stocks worldwide tumbled in Asian and early European market hours after weak economic data from China and Europe fanned concerns of a global economic slowdown and left investors fretting over the wider impact of a still-unresolved Sino-U.S. trade dispute. Eurozone business ended the year on a weak note, expanding at the slowest pace in over four years as new order growth all but dried up, hurt by trade tensions and violent protests in France, a survey showed. Data out of Europe added to weak readings from China, where November retail sales grew at the weakest pace since 2003, and industrial output rose the least in nearly three years underlining risks to the economy as Beijing works to defuse a trade dispute with the United States.

Although hopes of progress in U.S.-China talks and cheap valuations are supporting the market, for now, we have lots of potential pitfalls. Analysts and Investors alike believe that the recent inversion curve in the US treasury yield hints at a slowdown in the economy which will be confirmed if the US Fed decides to stop the rate hike for 2019. The macro data outcome provides clear signs that economic growth is slowing down in Asia and Europe which goes to show that the global economy, on the whole, is losing growth pace thereby inspiring cautious investor sentiment. This combined with local and international political woes across major global markets has resulted in equity markets across the globe turning dovish on the last trading session of the week.

• The dollar index DXY which is used to measure the strength of US Greenback against a basket of six major global currencies is currently at 97.54 up by 0.46% on the day as the rout in the equity market has boosted demand for USD in broad market as safe haven instrument.
• Asian and European equity markets face dovish influence not just from local macro data but on international frontiers as well. Investor sentiment is turning dovish in Asia as political tension between Canada and China escalate owing to China’s retaliation in form of arrest of Canadian businessman on suspicion of harming China’s security, while European markets are affected owing to France protest-related headlines and ECB President Draghi’s dovish comments cautioning slowdown in economy with risk skewed to downside.
• Oil prices fell as investors cashed in gains of more than 2% made during the previous session on concerns that demand may decrease amid slowing economic growth, but analysts still expect that the recent supply cuts from the producer cartel will support price action in the broad market.
• Precious metals trade range bound as demand for safe-haven assets owing to risk-averse investor sentiment keeps the volatility in favor of bulls, but upside move is capped as USD demand is also boosted owing to Greenback being considered as a primary safe-haven asset in the current market.

On The Lookout:

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  Brexit deal stalls

  Brexit & EU Summit – PM May’s attempts to renegotiate the Brexit deal during EU summit yesterday failed as representatives were clear with their intentions stating there is no more room for further negotiations or another deal leaving approval of Brexit draft to hardline Brexiteers. Meanwhile, early today morning President of the European Commission Jean-Claude Juncker announced that the European Union would begin publishing all information concerning a no-deal Brexit scenario and preparations for such an event will begin on December 19^th, 2018 making his stance clear that this deal is best that the UK is going to get on their table.

• French Woes – According to macro data released today French business activity plunged unexpectedly into contraction this month, retreating at the fastest pace in over four years in the face of violent anti-government protests. Meanwhile, another yellow vest protestor died today in an accident caused by the protestors roadblock making it the sixth death in relation to yellow vest protest. While French President Macron has taken some measures to calm down protestors and ease public worries, many protesters have expressed disappointment at the measures and are proposing more protests across France on Saturday.
• EM Currencies – Emerging market currencies are suffering significantly owing to economic slowdown woes. This was further aggravated on weak Chinese economic data and increasing demand for USD as a safe-haven asset on equity routs. Korean won poised to lose nearly 1 percent this week and Indian rupee on track for the second week of heavy declines, while Philippines Peso weakened after the central bank left its benchmark interest rate on hold at 4.75%.
• Economic Data Release and Events – European markets saw the release of Eurozone, French and German Manufacturing, Markit Composite & Services PMI data all of which had a bearish outcome. Moving forward, US markets will see release of Retail sales data, Industrial and manufacturing production data, Manufacturing & Services PMI data updates during North American market hours.

Trading Perspective:

• EURUSD – EUR/USD is currently trading near the 1.1300 handle after hitting an intra-day low of 1.12864. The pair which was already under pressure following European Central Bank President Mario Draghi’s dovish comment was further pushed into sharp bearish slide following the dovish outcome of Eurozone, French and German Flash PMI data release. In regards to the near future, the pair faces no technical support as low as the 1.1260 level. Also, the continuation of Brexit turmoil is set to beat the Euro down ahead of US FOMC update suggesting that short-term picture is dovish for the common currency.
• USDJPY – The USD/JPY pair edged lower during the Asian session, as risk aversion took over the FX board. However, as both currencies are perceived as safe-havens in times of turmoil, the pair held within familiar levels locked inside an intraday range between 113.41 and 113.64. While the price action shows consolidation near the upper end of the weekly range dollar’s broad strength is being neutralized by increased demand for US government bonds. The 4 hours chart shows that the price is continuing to developing well above 100 and 200 SMA’s which run parallel around 113.20. The Momentum indicator continued retreating which suggests the lack of follow-through hinting at an upcoming slide, while the RSI indicator consolidates around 59 all of which maintains the downward limited. To the upside, a recovery past 114.00 could send the pair up to the 114.40/50 price zone.
• AUDUSD – The Australian dollar was sharply lower in Asian and European market hours pressured by weaker than expected China’s IP and retail sales data that pressured riskier assets. Australian mining-based economy is quite dependent on the Asian giant, which consumes most of its production resulting in the Australian economy suffering significantly whenever the Chinese market is hit. The pair is now on track for the second consecutive bearish weekly close, after last week’s weekly bearish engulfing pattern generated a strong bearish signal.