I. Market focus
Wednesday in the global financial markets began with the release of the Australian data on GDP for the third quarter, which turned out to be much worse than expected. Weak GDP data reinforced the confidence of market participants that the RBA would not consider tightening its monetary policy in the foreseeable future while heightening negative sentiment in the markets that continued to predominate after the previous day’s sell-off in the U.S. stock markets.
The major U.S. stock indexes tumbled more than 3 percent on Tuesday. There were no new reasons for the drop. Market participants continued to concern over the trade tensions between the United States and China, doubting whether the outcomes of the recent meeting of the leaders the two countries would lead to a real improvement in the situation.
The focus of market participants is on the meeting of the Bank of Canada (BoC), the outcomes of which will be announced today at 15:00 GMT. It is expected that the Canadian central bank will not make any changes to the parameters of its monetary policy, leaving its benchmark interest rates unchanged at 1.75 percent. In the accompanying statement, the regulator may note the negative impact of lower prices in commodity markets as well as the need to continue the process of raising rates.
Among the macroeconomic reports, attention should be paid to data on activity in the UK services sector (09:30 GMT).
It should be noted that the U.S. financial markets will be closed today for a national day of mourning to honor former President George H.W. Bush. Against this backdrop, trading volumes in global markets today will be reduced.
II. The market highlights are:
The Australian Bureau of Statistics (ABS) reported on Wednesday that Australia’s real gross domestic product (GDP) rose by 0.3 percent q-o-q (in seasonally adjusted terms) in the third quarter of 2018, missing economists’ expectation for a growth of 0.6 percent q-o-q. In the second quarter, the GDP recorded a 0.9 percent q-o-q expansion. In y-o-y terms, the GDP grew 2.8 percent after a revised 3.1 percent y-o-y surge in the prior quarter (originally reported advance of 3.4 percent y-o-y). Economists had forecast a 2.8 percent y-o-y rise in the last quarter. That was the weakest annual expansion rate since the third quarter of 2017. According to the ABS, growth in domestic demand accounted for over half the expansion in GDP and reflected strength in household expenditure. Household final consumption expenditure increased 0.3 percent q-o-q, driven by rises in insurance and other financial services (+1.6 percent q-o-q), food (+0.8 percent q-o-q) and transport services (+1.8 percent q-o-q). Meanwhile, general government final consumption expenditure grew 0.5 percent q-o-q as national government consumption rose 1.9 percent q-o-q, while state and local government consumption dropped by 0.5 percent q-o-q. Private investment recorded a 0.8 percent q-o-q decrease, as declines in non-dwelling construction (-3.8 percent q-o-q) and ownership transfer costs (-4.2 percent q-o-q) were only partly offset by increases in machinery and equipment (+1.3 percent q-o-q) and dwellings (+1.0 percent q-o-q). Public investment Public investment rose 3.4 percent q-o-q with rises across both public corporations (+4.8 percent q-o-q) and the general government sector (+2.9 percent q-o-q). Net exports contributed 0.3 percentage points to GDP growth driven by a fall in imports (-1.5 percent q-o-q).
Markit/Caixin’s survey revealed on Wednesday that the activity in the Chinese services sector rose modestly in November. The Caixin/Markit services purchasing managers' index (PMI) came in at 53.8 last month on a seasonally adjusted basis, up from the previous month's reading of 50.8. Economists’ had predicted the reading to edge down to 50.7. The 50 mark divides contraction and expansion. According to the survey, the new orders recorded the steepest increase since June, with Chinese service providers noting a modest increase in new business from abroad as well. Expectations that new orders will rise further in the coming months led services companies to increase their workforce numbers for the second consecutive month. On the price front, the gauge for prices charged by service providers fell, while the one for input costs remained unchanged from October, which was not good for companies’ profit margins. Caixin China Composite PMI, which covers both manufacturing and services, rose from a 28-month low of 50.5 in October to 51.9 in November, signaling a modest rate of expansion.
III. Market Situation
The currency pair EUR/USD fell moderately, refreshing the low of December. The pair came under pressure due to a new wave of strengthening of the U.S. dollar on the back of renewed fears of the trade war between the U.S. and China and the moderate flight of investors from risks. The U.S. officials said they planned to take a tough stand in their 90-day trade negotiations with China. The U.S. president Donald Trump and other officials switched their focus to issues they want to see addressed and the consequences of not reaching an accord in a time frame that China initially didn’t acknowledge. Today, investors will be focused on the speech of ECB President Draghi, the Eurozone's statistics (reports on the PMIs and retail sales), and the U.S. data, including the ADP private employment report and the ISM Non-Manufacturing PMI index. Resistance level - $1.1471 (high of November 20). Support level - $1.1268 (low of November 28).
The currency pair GBP/USD demonstrated a moderate decline, due to the broad strengthening of the U.S. currency. In addition, investors adjust their positions ahead of the release of the Services Purchasing Managers' Index (PMI) for the UK. Since the service sector comprises more than 60 percent of the UK’s GDP, this indicator is more important than that for the manufacturing sector. According to economists’ forecast, the services PMI rose to 52.5 points in November from 52.2 points in October. Apart from the data, traders will also focus today on the dynamics of the U.S. currency and the general market sentiment toward risky assets. Resistance level - $1.2926 (high of November 22). Support level - $1.2589 (low of June 21, 2017).
The currency pair AUD/USD fell sharply, refreshing its one-week low. The catalysts for this were the strengthening of the U.S. dollar and the disappointing data on Australia's GDP, which strengthened investor confidence that the RBA would not consider tightening monetary policy in the foreseeable future. The Australian Bureau of Statistics (ABS) reported that Australia’s real gross domestic product (GDP) rose by 0.3 percent q-o-q (in seasonally adjusted terms) in the third quarter of 2018, missing economists’ expectation for a growth of 0.6 percent q-o-q. In the second quarter, the GDP recorded a 0.9 percent q-o-q expansion. In y-o-y terms, the GDP grew 2.8 percent after a revised 3.1 percent y-o-y surge in the prior quarter (originally reported advance of 3.4 percent y-o-y). Economists had forecast a 2.8 percent y-o-y rise in the last quarter That was the weakest annual expansion rate since the third quarter of 2017. Resistance level - AUD0.7392 (high of December 3). Support level - AUD0.7198 (low of November 27).
The currency pair USD/JPY traded moderately higher, gradually recovering after the previous day’s drop. The pair was supported by the widespread strengthening of the U.S. currency and the Japanese data. The latest survey from Nikkei revealed that Japan’s services sector continued to expand in November, albeit at a fractionally slower pace. According to the report, the Nikkei Japan Services PMI came in at 52.3 in November 2018, down marginally from a 6-month high of 52.4 in the previous month. Individually, business activity continued to grow at a solid rate as demand conditions remained favorable. Confidence strengthened to a 10-month high. Meanwhile, the composite PMI, which covers both manufacturing and services, eased to 52.4 in November from 52.5 in October. Resistance level - Y113.82 (high of December 3). Support level - Y112.29 (low of November 20).
U.S. stock indexes closed drastically lower on Tuesday, on the back as investors reined in their optimism over a breakthrough in the U.S.-China trade war and worried about a bond-market phenomenon signaling a possible economic slowdown and recession in the future.
Asian stock indexes closed lower on Wednesday, following a rout on Wall Street overnight.
European stock indexes are expected to trade lower in the morning trading session.
Yields of US 10-year notes hold at 2.91% (0 basis points)
Yields of German 10-year bonds hold at 0.26% (-1 basis points)
Yields of UK 10-year gilts hold at 1.14% (0 basis points)
Light Sweet Crude Oil (WTI) futures traded lower. Crude oil for delivery in January settled at $52.48 (-1.45%). The crude oil prices plummeted, weighed down by stronger U.S. dollar and the latest data from the American Petroleum Institute (API). The API reported the U.S. crude supplies rose by 5.4 million barrels for the week ended November 30. At the same time, gasoline stockpile increases by 3.6 million barrels and distillate stocks surged by 4.3 million barrels. The weekly data on U.S. crude inventories from the U.S. Energy Information Administration (EIA) will be released tomorrow.
Gold traded at $1,234.70 (-0.31%). Gold prices fell moderately, as the U.S. dollar strengthened. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, rose 0.18 percent to 97.14. Since gold prices are tied to the dollar, a stronger dollar makes the precious metal more expensive for holders of foreign currencies.
IV. The most important scheduled events (time GMT 0)
ECB President Mario Draghi Speaks
Purchasing Manager Index Services
ADP Employment Report
Unit Labor Costs
Bank of Canada Rate
BOC Rate Statement
Fed's Beige Book
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