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Trade Deal Uncertainty Dominated Market Sentiment Despite Upbeat GDP Numbers

By Glenford S. Robinson

Earlier in the week, the US and China seemed close to finalizing a trade deal; however, hopes waned after news broke that president Trump signed into law, the Hong Kong Human Rights and Democracy Act of 2019; thus, giving official U.S-support to Hong Kong Protestors. This law gives the U.S. the right to conduct annual reviews of Hong Kong special trade status under U.S. Law, as well as imposing sanctions, on China or any Hong Kong officials suspected of human rights abuses, or undermining of the City’s autonomy. A second measure of the Hong Kong Law also bans the exporting of Crowd-control items, such as tear gas and rubber bullets to the Hong Kong police. Wow!

China fired back as expected, threatening retaliation and summoned U.S. Ambassador Terry Branstad, with Vice Foreign Minister Le Yucheng, informing him that he should stop meddling in Hong Kong affairs, warning that such actions would strain ties and affect cooperation in important areas; one of those important areas could possibly be the US-China trade negotiations. No one knows for sure. This simply means that the Financial Markets will possibly begin to see increase volatility. In fact, as a result of the Hong Kong Bill signing, the stock market finished in the red on Friday. Financial Markets’ susceptibility to US-China trade war updates, continually test the mettle of portfolio managers, Hedge Fund managers, and central bank presidents

The U.S. Federal Reserve will possibly pause, its interest rate cutting ambitions, until Washington and Beijing, finalize a trade deal. Until then, expect investors to be unsure of the Financial Markets, leading to the possibility of increase volatility. This is when portfolio managers, Hedge Fund managers, and central bank presidents, earn their stripes.

Global growth continues to decline as a result of the prolonged trade war, and with the December 15 deadline fast approaching, it’s unclear whether or not a limited phase-one deal for a new round of tariff can even be achieved, this year.

Elsewhere, the Eurozone economy in particular, saw improvement in inflation and unemployment. The Consumer Price Index (CPI) year-over-year improved by 0.3% in November to 1% beating forecasts of 0.9% and a previous reading of 0.7%. CPI measures changes in the price of goods and services in regards to the consumer. It plays a key role in measuring purchasing trends and inflation.

A higher than expected CPI reading should be perceived as positive for the European Economy and bullish for the EUR, while a lower than expected reading should be perceived as negative for the European economy and bearish for the EUR. Eurostat released the Eurozone CPI on November 29th 2019 at 5 AM, GMT. Another positive sign for the Eurozone economy was the German unemployment report; the unemployment number decreased by 11,000 from 5,000, beating forecast of 5,000 and a previous reading of 5,000, by posting a well needed reading of negative 16,000.

The German Unemployment Report measures changes in the number of unemployed people during the previous month.
A higher than expected reading should be perceived as negative for the German and European economy and bearish for the EUR, while a lower than expected reading should be perceived as positive for the two economies and bullish for the EUR. In fact, recent moves of the Euro reflect this positive change. On Friday, November 29th 2019, the EUR lift-off from a low of 1.0982 to a daily high of 1.1028. In fact, no one knows for sure if this recent upward move by the EUR will continue. The US-China trade war and Brexit will ultimately decide the faith of the European economy and the EUR in coming weeks or months.

The Eurozone economy longs for a recovery. If negative interest-rates-monetary policy runs for too long, dire consequences could occur, and the Eurozone economy currently faces this dilemma. By the way, the US-China trade war happens to be more detrimental to the European economy than it is to the US economy because the European economy in regards to Germany, depends heavily on automobile exports, so with the advent of the US-China trade war, no German automobiles built in America is currently being exported to China. German automobile manufactures build some of their cars at plants in the U.S. before these vehicles get exported to China. So, with an ongoing trade war, German cars and trucks made in America, sit on inventory shelves collecting dust with no Chinese consumer to buy them; thus, effectively reducing German and Eurozone manufacturing and sale activities, as a result of Germany, being the largest economy in the Eurozone.

In the UK, Boris Johnson, a stark proponent of Brexit, continues to lead in the polls as the December 12 election draws near. Trading opportunities, in the Forex Market will be plentiful, on election day. Volatility will be at an all-time high, with no one knowing exactly which way the market will go. Either way, big money will be made in the Forex Market on December 12. That’s for sure. Are you ready to make big money? Then give your certified investment advisor a call. You just might make a couple million or lose a couple million. Hey, that’s investing!

The months of November proved to be a very miserable month for Gold. The metal started out the month trading at a high of $1,516.05 per troy ounce but ended the month trading at a low of $1,453.19. Investors sold the precious metal as a result of easing trade tension between the US & China and bought equities instead.  We know investors did this because the stock market trended higher from October 9th 2019 after a double bottom presented itself on the SPX Index Chart. That’s a move from 2,893.10 to 3,141 points, a 247.9-point increase.

Investors sell Gold and buy equities and the USD during times of economic prosperity, while buying the precious metal during times of economic uncertainty treating it, as a safe-haven asset. Well, based on recent U.S. economic data, the economy has been prospering as of late. Investors sometimes treat the USD as a safe haven asset when other economies decline. Well, investors have begun buying the USD, as of late. The USD rose from November 20th to November 29th and still shows signs of continuing. This simply means that investors bought the USD & equities and sold Gold & the EUR.

Investors treat Bitcoin in a similar way as they do Gold. However, Bitcoin is more of a speculative asset while Gold is not. Bitcoin fell from a high of $7,870.10, per coin, on Friday to a low of $7,237.16 on Sunday, December 1st after news broke that Virgil Griffith an American Ethereum Cryptocurrency programmer got into hot water with the U.S. Attorneys’ office for allegedly teaching blockchain technology to a foreign country in a way deemed by the U.S. to be not of good taste.

Let us now, turn our attention, to some U.S. Macroeconomic data. Wednesday, November 27th turned out to be a very busy day in the world of Macroeconomic data releases. We will start by talking about the Core Durable Goods Orders Report. The Core Durable Goods Orders Report measures changes in the total value of new orders for long-lasting manufactured goods, excluding transportation items. Because of the high volatility of aircraft orders, the core reading gives a more accurate measure of ordering trends. A higher than previous reading indicates an increase in manufacturing activities. Similarly, a higher than expected reading should be perceived as positive for the U.S. economy and bullish for the USD, while a lower than expected reading should be perceived as negative for the U.S. economy and bearish for the USD.

The Core Durable Goods Orders, month over month, for October beats forecasts of 0.2%, by posting a whopping 0.6%, which also beats a previous reading of -0.4%. When consumers buy durable items, it means that they are also buying new or existing homes; This also, suggests that mortgage rates must be low enough for consumers to afford these mortgages. And, yes! Mortgage rates currently sit at very low values, ranging from 3.25% to 3.5%, respectively, very low indeed. So, we can safely conclude that the U.S. economy has begun to show some signs of good health. The U.S. Census Bureau released the Core Durable goods Orders on Wednesday, November 27, 2019 at 8:30 AM, New York Time.

The Gross Domestic Product (GDP) measures changes in the inflation-adjusted value of all goods and services, produced by the U.S. economy. The GDP provides the broadest measure of economic activity and functions as the primary indicator of economic health. A higher than expected reading should be perceived as positive for the U.S. economy and bullish for the USD, while a lower than expected reading should be perceived as negative for the U.S. economy and bearish for the USD. The current GDP number released on Wednesday, November 27, 2019 at 8:30 AM, New York Time beat market expectation of 1.9% by posting a 2.1% reading, beating out a previous reading of 2%. This result further supports the argument that the U.S. economy begins to do much better, than it did, in previous months, where GDP readings remained at 2% for several quarters. The Bureau of Economic Analysis released the GDP Report.

Now comes, the Initial Jobless Claims Report. The Initial Jobless Claims Report measures the total number of people filing for unemployment insurance for the first time, in the past week. Initial Jobless Claims data, precedes all economic data, causing it to be, the earliest economic indicator. As a result of being such an early economic indicator, its impact on financial markets varies from week to week.

A higher than expected Initial Jobless Claims reading should be perceived as positive for the U.S. economy and bullish for the USD, while a lower than expected reading should be perceived as negative for the U.S. economy and bearish for the USD. The current Initial Jobless Claims reading for the past week came in at 213,000 beating market expectation of 223,000 and a previous reading of 228,000. As it stands, the U.S. economy looks to be heading in the right direction. Let’s hope this continues. The Department of Labor released the Initial Jobless Claims Report on Wednesday, November 27th, 2019 at 10 AM, New York Time.

Just when we think the U.S. economy begins to turn around, then this. The Pending Home Sales Report for October disappoints, by posting a less than desirable reading of -1.7%, missing forecasts and previous readings of 0.2% and 1.4%, respectively. The National Association of Realtors (NAR) Pending Home Sales Report measures changes in the total number of homes under contract to be sold, but still awaiting the closing transaction, excluding new construction. A higher than expected Pending Home Sales reading should be perceived as positive for the U.S. economy and bullish for the USD, while a lower than expected reading should be perceived as negative for the U.S. economy and bearish for the USD dollar.

The NAR released the Pending Home Sales Report on Wednesday, November, 27th, 2019 at 10 AM, New York Time. The Pending Home Sales data should strike a little reality-check-fear, into all of us, telling us that the U.S. economy still has a long way to go, before it fully regains, its expansion-phase, momentum. On the other hand, the lower reading could be looked at in a positive light, which confirms that less homes remain in closing-contract-status because those homes have simply been sold. This would make sense because if homes are being sold at a faster rate, there will be less homes awaiting closing transactions. No need to prolong the closing process when houses are flying off shelves. This view could explain why the Core Durable Goods Orders reading, came in higher than expected. There you have it.

Trade Deal Uncertainty Dominated Market Sentiment Despite Upbeat GDP Numbers

Disclosure

The Mstardom Finance trading team currently trades the EUR/USD currency pair, utilizing long, short, and hedging strategies. 

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