STRONG US job data, trade tensions, Opec and Saudi Aramco were among the global highlights for last week while for the week ahead, Britain goes to the polls on Thursday.
1. Better-than-expected US labour market data.
According to the US Bureau of Labor Statistics, total non-farm payroll employment rose by 266,000 in November, and the unemployment rate was little changed at 3.5%. Notable job gains were registered in health care and professional and technical services.
Most importantly, manufacturing employment rose by 54,000 in November, following a decline of 43,000 in the prior month. Within manufacturing, employment in motor vehicles and parts was up by 41,000 in November, reflecting the return of workers from a strike. The question is for how long this will or can go?
2. Trade tensions continue to escalate all over the world.
China is not the only country to deal with Donald Trump anymore, as Brazil, Argentina, and France also got their portion of tariffs. In the first case, it has been associated with “a massive devaluation” of the national currencies with the hypothetical purpose of taking away the competitiveness.
In this context, according to Nordea, countries like South Korea, Chile, Hungary, and even Sweden and Norway could be on Trump’s “target list” due to weakness in their currencies over the past year.
In case of France, it was the new digital-services tax that tested the US president's patience. As a result, major European stock markets went down.
The conclusion here is quite simple: optimism in the trade deal may eventually strengthen national currencies, especially in the case of the Australian dollar (AUD), New Zealand dollar (NZD) and Canadian dollar (CAD), at the same time, affecting the oil market. The problem is that Trump became more hawkish on trade over the past week.
3. Bank of Canada kept its benchmark rate steady at 1.75%, as expected.
Despite the fact that Canada’s job market weakened for a second month in a row (the economy lost 71,200 jobs in November, following a decline of 1,800 in the previous month), registering the biggest drop in employment since 2009, the Bank’s October projection for global economic growth remains the same.
On the other hand, the central bank noted business investment spending in Canada, which rose 2.6% in the third quarter, was stronger than expected.
As a result, the Bank of Canada maintained its target for the overnight rate at 1 ¾ percent. The Bank Rate is correspondingly 2 percent and the deposit rate is 1 ½ percent. The future depends on the adverse effects the trade conflicts against the sources of resilience in the Canadian economy – consumer spending and housing activity. It is recommended to keep an eye on the Canadian government bond yields, as these may reverse in case of the data worsening.
4. Reserve Bank of Australia also kept the interest rate steady at 0.75%.
According to Philip Lowe’s statement, the outlook for the global economy remains reasonable. While the risks are still tilted to the downside, some of these risks have lessened recently.
After a soft patch in the second half of last year, the Australian economy appears to have reached a gentle turning point. The central scenario is for growth to pick up gradually to around 3% in 2021.
However, the Board is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time. In the case of a negative scenario, we might see the cash rate reduced to 0.5% in early 2020.
5. In an attempt to get a boost for the IPO of Aramco, Opec+ agreed to an additional cut in output by 500.000 barrels per day.
Opec and non-Opec allies decided to implement tighter oil production policy, above many analysts’ expectations. In total, Opec+ reduce total oil output by 1.7 million barrels per day.
This announcement may provide strong support to the oil market in the short- or medium-term. Trump did not say much on Opec but that might change later in 2020 if oil and gasoline prices rise.
Most important economic events this week:
Investors will mainly focus on the central banks meeting.
*The Federal Reserve rate meeting will take place on Dec 11. Investors do not expect to see another rate cut, as Fed officials have widely signaled they plan to hold rates steady. Nevertheless, over 60% expect one more rate cut in 2020.
Even though, we will receive updates on both the dot plot and economic projections. Dollar liquidity will be another important topic.
* On Thursday, the UK general election will take place. The results could have a big impact on the future of the Brexit negotiations.
* At the same time, it is recommended to pay attention to the ECB rate meeting, as it will be the first rate meeting for Christine Lagarde. FYI: no rate cuts are expected, but you should pay attention to her tone.
* Finally, the Bank of Russia will make a decision on the key rate. No rate cut is expected after the previous 125bp lowering. Even though, we might see two more additional rate cuts of 25bp in 2020, if inflation continues decelerating.
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