Week Ahead: Rising Volatility As Markets Await Trade Pact; Oil Slump Continues

Week Ahead: Rising Volatility As Markets Await Trade Pact; Oil Slump Continues

Investing.com  | Dec 01, 2019 21:22

  • Investors may be getting impatient once again at the lack of trade progress
  • Yields set to keep falling
  • Oil threatening to reverse into a downtrend
  • With the approach of the Dec. 15 deadline for the next batch of Chinese goods to be hit with tariffs by the U.S., investors—worn out by whipsawing news on whether a trade accord is near—are getting increasingly nervous. To date, neither side has budged from its position. As a result, on Friday, U.S. equities retreated from all-time highs, joining a global selloff, as markets await new trade developments.

    China continues to insist that the U.S. completely rollback all tariffs via Phase I of the overall deal. The U.S., on the other hand, is only willing to cancel tariffs scheduled to go into effect on Dec. 15, but only upon signature of Phase I; it insists, instead, that it will only repeal the full array of tariffs when the final deal is inked.

    Meanwhile, China’s biggest dollar-denominated bond sale took place last Tuesday. It raised $6 billion for the Asian nation, its biggest international bond sale ever. The country’s Ministry of Finance boasted that orders for the sale reached 3.6 times the issuance.

    Major U.S. Indices Retreat From All-Time Highs, But Show Gains For November

    All of the major U.S. indices—the S&P 500, NASDAQ Composite, Dow Jones Industrial Average and the Russell 2000—finished lower during Friday's shortened session after the Thanksgiving break. Trading volume was lighter than usual, about 16% below the 30-day average.

    The S&P 500 slipped 0.4% from its all-time high, with every single sector in negative territory. Utilities 'outperformed' the laggards (-0.1%) with Energy leading the losses (-1.01%). Consumer Discretionary shares were the second worst performers, (-0.65%).

    For the week, however, the SPX climbed, (+ 0.99%). Every sector was in the green, except Energy, (-1.57%), which slumped along with the price of oil. It was the benchmark index’s third consecutive monthly advance; the S&P 500 gained 3.43% for the month, 7.4% for the three month period. Technology (+5.95%), Healthcare (+5.47%), and Financials (+4.47%) shares led the pack while Energy (-0.89%), again, underperformed.

    SPX Monthly 2016-2019

    Technically, over the course of November, the S&P 500 traded almost entirely above the massive bearish, broadening formation, since January 2018, suggesting the market blew out the pattern.

    Oil posted its steepest weekly decline in nearly two months. WTI dropped below $57 amid signs that OPEC and OPEC+ don’t intend to increase production cuts at next week’s meeting.

    Oil Daily

    From a technical perspective, crude oil fell below its rising channel since Oct. 3, as well as below all the major MAs. This is the second drop for the commodity below the channel bottom within 10 days.

    Yields, including for the 10-year Treasury note, traded mixed after the holiday. Chris Rupkey, MUG Union Bank Chief Financial Economist says the bond market seems to have adopted the Fed’s view that baby boomer generation savings are what's driving down yields. As well, European and Japanese yields are zero or negative, driving money to the U.S. and pushing down Treasury yields even further.

    However, Rupkey believes that U.S. monetary policy is what’s weighing most heavily on yields, as investors come to accept that the Fed will keep cutting rates to support growth. If the U.S. will, in fact, fall into a recession, yields will drop to a range of 0.75% to 1.00%, as the Fed will keep carving out historically low rates.

    Rupkey argues the Fed is “trying to oversteer the economy.” He wishes the central bank would just set rates at a normal 2.5% to 3.5% level and simply “get out of the way.”

    UST 10-Y Daily

    On the technical charts, yields are developing a rising flag, bearish after the preceding drop from Nov. 12 through 20, smack on top of the (thick) downtrend line since the November 2018 top. The 200 DMA has also been pressing on top of the short-term rising channel since the September bottom.

    DXY Daily

    The dollar failed to break to the upside on Friday, from the Nov. 13 high, though it did post a higher intraday high within the rising channel since June 13, while remaining above the 50 DMA for the fifth session, after scaling above the 200, then 100 MAs.

    The Bloomberg Dollar Index climbed for the ninth session in a row, its longest winning streak since January 2016. That may signal that the U.S. Dollar Index will follow.

    As with everything else market-related right now, a U.S.-Sino trade pact is the wild card. The mid-December deadline looms large as both countries remain at an impasse. President Donald Trump’s signing of the Congressional bill supporting the democratic rights of Hong Kong protestors, people China considers terrorists, provoked China to threaten “strong counter-measures." Naturally, that's not something investors want to hear or see, particularly when stocks are already near the priciest they’ve ever been.

    The Week Ahead

    All times listed are EST


    20:45: China – Caixin Manufacturing PMI: probably edged down to 51.4 from 51.7.


    3:55: Germany – Manufacturing PMI: expected to remain flat at 43.8, leaving the metric in contraction mode.

    4:30: UK – Manufacturing PMI: seen to remain steady at 48.3, well below the 50.00 mark that signifies growth.

    9:00: Eurozone – ECB President Lagarde Speaks

    10:00: U.S. – ISM Manufacturing PMI: likely rose to 49.2 from 48.3 in November.

    22:30: Australia – RBA Interest Rate Decision: forecast to stay at 0.75%.


    4:30: UK – Construction PMI: expected to rise to 44.5 from 44.2, still well below growth metrics.

    19:30: Australia – Q3 GDP: likely to stay flat at 0.5% for the third quarter, while rising to 1.7% from 1.4% on a yearly basis.


    4:30: UK – Composite PMI: will probably remain flat at 48.5.

    4:30: UK – Services PMI: seen to have also remained flat, at 48.6.

    8:15: U.S. – ADP Nonfarm Employment Change: expected to have climbed to 140K from 125K.

    10:00: U.S. – ISM Non-Manufacturing PMI: anticipated to edge down to 54.5 from 54.7.

    10:00: Canada – BoC Interest Rate Decision: likely to remain at 1.75%.

    10:30: U.S. – Crude Inventories: last week's stock was larger than expected, coming in at 1.572M barrels.


    10:00: Canada – Ivey PMI: seen to rise to 53.8 from 48.2, back into growth territory.


    8:30: U.S. – Nonfarm Payrolls: expected to jump to 180K from 128K.

    8:30: U.S. – Unemployment Rate: anticipated to remain flat at 3.6%.

    8:30: Canada – Employment Change: to surge to 10.0K from -1.8K.


    Related Articles

    Latest comments

    Add a Comment
    Please wait a minute before you try to comment again.
    Write a reply...
    Please wait a minute before you try to comment again.

    Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
    Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
    Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
    It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
    Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

    English (USA) English (UK) English (India) English (Canada) English (Australia) English (South Africa) English (Nigeria) Deutsch Español (España) Español (México) Français Italiano Nederlands Português (Portugal) Polski Português (Brasil) Русский Türkçe ‏العربية‏ Ελληνικά Svenska Suomi עברית 日本語 한국어 简体中文 繁體中文 Bahasa Indonesia Bahasa Melayu ไทย Tiếng Việt हिंदी
    Sign out
    Are you sure you want to sign out?
    Saving Changes


    Download the Investing.com App

    Get free real time quotes, charts and alerts on stocks, indices, currencies, commodities and bonds. Get free top of the line technical analysis/predictors.

    Investing.com is better on the App!

    More content, faster quotes and charts, and a smoother experience is available only on the App.