Spot values at a glance:
Global stock markets headed into the year-end under a heavy cloud after another rout this week as US political uncertainty added to heightened concerns over slowing global economic growth. Asian equities were shaky on Wednesday following a Christmas eve Wall Street plunge, as investors were unnerved by US political developments including a US federal government shutdown and President Donald Trump’s hostile stance toward Federal Reserve chairman Jerome Powell.
Trump Talks Up Mnuchin, Fed:
Donald Trump expressed confidence in the Treasury secretary, Federal Reserve and US economy on Tuesday, moving to calm financial markets further roiled after Bloomberg News reported that the president had discussed firing the central bank’s chairman over raising interest rates.
Trump, asked if he has confidence in Treasury Secretary Steven Mnuchin, said, “Yes I do, very talented guy, very smart person.” Asked about Fed Chairman Jerome Powell, Trump said the central bank is “raising interest rates too fast” but he has “confidence” that the Fed will “get it pretty soon.” The president said the Fed is hiking borrowing costs because the “economy is doing so well,” adding that US companies are having “record kinds of numbers” and it’s a “tremendous opportunity to buy.”
The remarks represent Trump’s first expression of public support for Mnuchin and Powell since people familiar with the matter told Bloomberg News last week that the president has discussed dismissing the Fed chief, who was recommended by Mnuchin. Before Tuesday’s comments, one person familiar with the president’s thinking said that Trump had also weighed dismissing Mnuchin, while another said that Mnuchin’s tenure may depend in part on how much markets continue to drop.
S&P 500 on the Brink of Bear Market Territory:
US stock-index futures whipsawed between losses and gains as investors assessed comments from President Donald Trump that he was confident in Treasury Secretary Steve Mnuchin and the American economy while the benchmark index sat at the edge plunging into bear market territory.
March contracts on the S&P 500 Index slipped 0.3% as of 10 a.m. in Singapore, after plunging as much as 1.1% and rising as much as 0.5% in volatile trading. Futures on the Nasdaq 100 Index and Dow Jones Industrial Average fell 0.3% and 0.2%, respectively. The benchmark gauge for American equities is 7 points away from completing a full-blown bear market drop.
The US stock market has been roiled in a year of big reversals with the Nasdaq Composite descending into a bear market last week and the nation’s benchmark inching closer to ending the longest bull market ever recorded. Even Donald Trump’s expression of confidence earlier Tuesday hasn’t calmed markets, which had spiraled after Bloomberg News reported that the president had discussed firing the central bank’s chairman over raising interest rates.
Partial US Government Shutdown Commenced Saturday:
Nine of 15 federal departments and dozens of other agencies shut down on Saturday after Donald Trump refused to sign a spending bill that didn’t include money for the border wall, his top campaign promise. Hundreds of thousands of government employees have been put out of work by the dispute or are forced to do their jobs without pay.
Trump said that federal workers furloughed in a partial government shutdown support his effort to force Democrats to vote to spend billions of dollars for a wall on the Mexican border. Congress has left Washington until Dec. 27, delaying negotiations to end the shutdown. Trump canceled a scheduled holiday at his Mar-a-Lago resort in Palm Beach, Florida.
Democrats won a majority in the House of Representatives in November’s midterm elections and will take control of the chamber in January. They have said they’ll swiftly pass legislation to re-open the government, but the party largely opposes construction of a wall. Asked what he would do if the House passes a bill that doesn’t fund a wall, Trump said “that’s probably presidential harassment, and we know how to handle that,” using a term his allies coined to describe anticipated Democratic investigations of the Trump administration.
Gold Soars as Stock Turmoil Spur Safe Haven Demand:
Gold is rallying into the end of 2018 as turmoil in global equities, the partial US government shutdown and concerns about the outlook for next year stoke demand, lifting prices to the highest in 6 months. Bullion rose in early trade in Asia on Wednesday before leveling off, with the metal on course for the biggest monthly advance since August 2017. Money managers are the most bullish on prices they’ve been in half a year.
The metal is proving to be a beneficiary of the sell-off that’s engulfed global equities after US shares tanked on Monday followed by losses in Asia on Christmas Day. Investors are turning away from risk amid further signs of dysfunction in Washington, with multiple sources of concern including President Donald Trump’s showdown with the Federal Reserve, the impasse over the budget, and fall-out from the resignation of Defense Secretary James Mattis.
Trade War Pain to Set In Next Year:
According to a Bloomberg news report, while 2018 was the year trade wars broke out, 2019 will be the year the global economy feels the pain. Bloomberg’s Global Trade Tracker is softening amid a fading rush to front-load export orders ahead of threatened tariffs. And volumes are tipped to slow further even as the US and China seek to resolve their trade spat, with companies warning of ongoing disruption.
Already there are casualties. GoPro Inc. will move most of its US-bound camera production out of China by next summer, becoming one of the first brand-name electronics makers to take such action, while FedEx Corp. recently slashed its profit forecast and pared international air-freight capacity. Financial markets have already taken a hit. Bank of America Merrill Lynch estimates that the trade war news has accounted for a net drop of 6% in the S&P 500 this year. China’s stock market has lost $2 trillion in value in 2018 and is languishing in a bear market.
Recent data underscore concerns that trade will be a drag on American growth next year. US consumers are feeling the least optimistic about the future economy in a year, while small business optimism about economic improvement fell to a 2-year low and companies expect smaller profit gains in 2019.
The IMF forecasts trade volumes will slow to 4% in 2019 from 4.2% this year and 5.2% in 2017. They warn that trade barriers have become more pronounced. Europe isn’t insulated either. While Germany’s key machinery sector will produce a record 228 billion euros this year, the trade disputes are among reasons why growth will slow, according to the VDMA industry association. Output will increase about 5% in real terms in 2018, the most since 2011, before growth slows to 2% next year.
Then there’s the risk of the US placing tariffs on auto imports from Europe and Japan, a move that would damage relations between some of the world’s biggest economies. The arrest of Huawei Technologies Co. Chief Financial Officer Meng Wanzhou illustrates the risk of unexpected developments that can quickly inflame already tense relations.
The critical question is whether Washington and Beijing can strike a deal by the March 1 deadline. If they succeed, a cloud will be lifted off the world economy. But for now, the threat that tensions will linger is a brake on business expansion plans, and thereby the global economy.
USDSGD was little changed Wednesday, as the Singapore dollar consolidated against the greenback ahead of Singapore’s industrial production data later in the day. USDSGD has largely maintained within the 1.3600-1.3875 range over the past 6 months. A breach below the 1.3600 support will likely result in an accelerated selloff towards the 200-day moving average of 1.3574.
AUDUSD is currently trading just above the key 0.7000 level. The unexpected rise in Australian November employment last week has done little to boost the Aussie, and change the market’s expectation that the RBA will hike rates anytime soon. Continued expected policy divergence between the 2 central banks is likely keep the currency pair’s bias towards the downside.
USDCAD gained in recent days to a new 20-month high, breaking above the 1.3600 handle in the progress, as continued weakness in crude oil prices weighed on the Canadian dollar. 1.3793 represents the pair’s next resistance level, last tested in 2017 May.
USDCNH continued to fluctuate around the 6.9000 handle The FX pair’s upside could be capped around its 50-day moving average at 6.9243. To the downside, 6.8260 represents a key support.
USDJPY’s swift break below the 112 handle has confirmed the breakdown of the pair’s 2018 uptrend. We should see some support around 110 over the short term although any pullback is likely to be capped at 111. The next important support region below is at 108.
GBPUSD recovered since declining to 1.2500 2 weeks ago, rebounding back to 1.2700. However, Brexit angst is expected to kick in again past the new year, as the House of Commons is predicted to almost certainly reject the exit deal she negotiated with EU leaders. From a technical perspective, a retest of the 1.2500 handle is expected again soon. A break below it could lead a fall further to the next support target at 1.2351.