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China data compounds investors’ fears

By David Madden

Volatility was the overriding theme of global stock markets last week.

Most European markets finished higher on Friday, but by-and-large it was a dreadful week for equities. Last week the FTSE 100 and the DAX fell to two year lows, and that underlines the weak investor sentiment. Over in the US, a mediocre non-farm payrolls report and an additional decline in US-China relations weighed on stocks.

In November, the US added 155,000 jobs, which was well below the 200,000 that economists were expecting. Adding to that, the October report was revised down to 237,000 from 250,000. The unemployment rate held steady at 3.7% and average earnings on a yearly basis remained at 3.1%. The earnings component is impressive, and workers who earn more are more likely to spend more. The disappointing headline jobs number could be a sign the economy is close to full employment.

Fears that US-China trade negotiations might be derailed increased last week. It was reported that the US authorities are going to charge Chinese hackers who targeted US technology companies. It was alleged that the hackers were operating for the Chinese government. Cyber security and intellectual property are very important to the US and this matter won’t go away easily. Keep in mind, the Huawei CFO, Meng Wanzhou, is possibly facing extradition to the US for allegedly breaching US sanctions regarding Iran. Investors are scared the heightened political tensions could lead to a more intense trade dispute.

China’s trade surplus with the US reached a record level, and that will be playing on President Trump’s mind. China’s economy is cooling and that is evident given that total imports grew by only 3%. Total exports grew by 5.4%, which highlights the decline in global demand. The CPI and PPI readings were 2.2% and 2.7%, while economists were expecting 2.4% and 2.7% respectively. Trump is applying pressure to China at a time when their economy is slowing, and over the weekend, Robert Lighthizer, US trade representative, said the 90-day truce is a ‘hard deadline’.

The Brexit saga could take an interesting turn today as the European Court of Justice will announce their ruling whether the UK could actually remain in the EU or not. An advisor to the ECJ said it is possible the UK could stay a member of the EU without getting permission from each individual member state, and the decision will be announced today. Tomorrow, MPs will be voting on Theresa May’s withdrawal agreement – which seems to have little support. I suspect May’s agreement is more popular than the headlines would have you believe, just because many MPs are afraid a no-deal Brexit.

At 9.30am (UK time) the UK will release a raft of economic data, the most important being the GDP estimate, and on a monthly basis economists are expecting 0.1% and 1.6% on an annual basis. Manufacturing production, industrial production and construction output will be released at the same time.

At 3pm (UK time) the US JOLTS report will be announced and traders are expecting 7.22 million.

EUR/USD – has been diving lower since late September and if it holds below the 1.1510/00 region, it could pave the way for the 1.1215 area to be retested. A move to the upside could run into resistance at 1.1533 – the 100-day moving average.

GBP/USD – has been broadly pushing lower since September and if the bearish move continues, it might target 1.2661. A break above 1.3000 might bring 1.3174 into play.

EUR/GBP – surged in mid-November and if the bullish trend continues it might target 0.9000. A drop below 0.8837 – 200-day moving average, might bring 0.8800 into sight.

USD/JPY – the upward trend that began in March is still intact, and if the positive move continues it might target 114.73. Support might be found at 111.39.

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