US Open – EU and US stocks rally continues, German Huawei Ban, Pound sinks on factory data, Oil and Gold steady

EU and US stocks are continuing to ride last week’s momentum that stemmed from the US-China phase-one trade deal and the Boris Johnson’s historic general election victory.  Over the weekend, Chinese November industrial production and retail sales came in better than expected, indicating economic growth is stabilizing in China.  With some trade uncertainty removed last week, investors should start feeling more confident that China will be able to keep their economy growing at 6.0% or better in 2020.  The Chinese yuan rose to session highs following the strong Chinese data

Calls for a wide-range global rebound were dashed after dismal French and German purchasing managers index data.  The preliminary German factory PMI reading for December fell to 43.4, down from 44.1 in the prior and a miss of the 44.6 analysts’ consensus.  Despite falling into deeper contraction territory, investors are still sensing a turnaround in Germany.  Both the German Economic Ministry and Bundesbank Monthly report painted a picture that Germany could stabilize in 2020.  The euro initially lost most of its gains following the eurozone PMI data but has rebounded back towards the session highs. 

The Stoxx Europe 600 rose to a record high and S&P 500 futures are pointing to a higher open, but we could start to see this euphoric rally struggle for significant upside until we get further details regarding last week’s trade deal and as some investors go into holiday mode.     

Huawei

Much of the trade war focus falls upon the US and China 20-month long battle and the transatlantic one, but we could see global growth take a big hit if Germany follows through with the US request for banning Huawei.  China is Germany’s largest trading partner and account for roughly a quarter of 28 million cars sold in 2018.  China’s ambassador Wu Ken said, “If Germany were to take a decision that leads to Huawei’s exclusion from the German market, there will be consequences.” 

Currently German lawmakers are reviewing a draft bill over 5G security.  If Germany bans Huawei, China is expected to come down hard on the automobile makers. Shares of BMW, Daimler and Volkswagen, all giants in the Chinese market place are all trading lower on the day. 

GBP

Traders may be entering holiday mode or looking for reasons to fade last week’s huge run up in sterling.  While UK politics will likely dictate the next major move for the British pound, unexpected softness with the preliminary PMI readings put the pound under pressure and drove gilts higher. 

The longer-term outlook for the British pound remains favorable and we could see investors want to buy any major dips. 

Oil

Oil is maintaining last week’s gains and that could be very bullish as much of the trading world was looking to fade this rally.  Oversupply concerns to drive weaker oil prices over the first half of 2020 is the base case for many investors, but we could finally start to see improved data from the world’s two largest economies spearhead calls for a global growth rebound.  China’s industrial production and retail sales data showed the economy improved in November and it should only get better after the phase-one deal kicks in. 

While Europe may continue to stagnate in Q4, they should show further signs of stabilizing next quarter and we could see a perfect storm of growth that should help oil overcompensate oversupply concerns in the short-term.  West Texas Intermediate crude is currently pushing towards a three-month high and it could easily target $62.50 if we see rebounds in US manufacturing and industrial data over the next couple of days. 

Gold

Last week, gold survived a wrath of market optimism that stemmed from the phase-one trade deal and the outcome of the UK general election.  Gold is currently trading on dollar moves and will likely see a slight pause in following every trade headline.  While, we could see safe-haven demand return if markets are disappointed with the details of last week’s trade deal, gold could continue to grind higher if the dollar pushes lower. 

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