Markets Insights

Markets may end year on a strong note

Degassing station facilities at the Zubair oil and gas field north of the southern Iraqi province of Basra. Opec members reached an agreement to cut oil production last Friday, which is a welcome development for financial markets, according to FXTM resear
Degassing station facilities at the Zubair oil and gas field north of the southern Iraqi province of Basra. Opec members reached an agreement to cut oil production last Friday, which is a welcome development for financial markets, according to FXTM research analyst Lukman Otunga.PHOTO: AGENCE FRANCE-PRESSE
Official data showed that China's trade surplus with the US hit a record last month, even as overall export growth slowed amid waning global demand and uncertainty about a constructive resolution to the trade war.
Official data showed that China's trade surplus with the US hit a record last month, even as overall export growth slowed amid waning global demand and uncertainty about a constructive resolution to the trade war.PHOTO: REUTERS

While US-China trade talks are a good start, there are concerns over America's economic outlook, say analysts

Investor sentiment see-sawed in the past week, with Asian markets starting on a high from news of a 90-day US-China trade truce, only to be foiled by doubt and, subsequently, the arrest of Huawei's chief financial officer in Canada over potential violations of US sanctions on Iran.

This came amid concerns about the outlook for the United States economy due to an inversion of a segment of the US Treasury yield curve, which is widely regarded as an early indicator of a potential economic recession.

But as markets head into the final weeks of the year, the question on many investors' minds is whether there will be some upside to close the year out.

In its weekly market view, Standard Chartered Bank's wealth management group said it expects equity markets to be set for a strong recovery into the year end, with Asia ex-Japan equities showing resilience following the sharp United States market sell-off last week.

The team added that trade talks between China and the US were a good start and "the respite might be enough to support emerging market assets in the near term".

"That said, geopolitical tensions are unlikely to go away, as reinforced by the arrest of a senior China tech company official."

Last Friday's November non-farm payroll data release saw the US economy add another 155,000 jobs - below the forecast figure of 189,000 - while the October data was revised lower to 237,000 from the first estimate of 250,000.

NEAR-TERM GAINS

With Opec agreeing to cut oil production (by more) than initially expected, oil prices are poised to extend gains in the short term. However, the medium-to-longer-term outlook remains open to question.

FXTM RESEARCH ANALYST LUKMAN OTUNGA

Charles Schwab Singapore managing director Greg Baker said: "The market was surprised by lacklustre US job numbers in November, but the good news is that average hourly earnings are up slightly, and unemployment remains low."

However, he added that any weaknesses in the US economy are likely to heighten investor concerns in the market going forward.

Meanwhile, FXTM research analyst Lukman Otunga said: "Although the unemployment rate remained unchanged at 3.7 per cent, the overall US jobs report remains dollar-negative and is likely to create some uncertainty over the Fed's hiking path beyond December."

Members of the Organisation of Petroleum Exporting Countries (Opec) also reached an agreement to cut production last Friday. Mr Otunga said: "This breakthrough in talks is a welcome development for financial markets and is seen as supporting risk sentiment during the upcoming trading week.

"With Opec agreeing to cut oil production (by more) than initially expected, oil prices are poised to extend gains in the short term. However, the medium-to-longer-term outlook remains open to question."

Official data released last Saturday showed that China's trade surplus with the US hit a record last month, even as overall export growth slowed amid waning global demand and uncertainty about a constructive resolution to the trade war.

Another event that could weigh on investor sentiment this week is the British House of Commons' verdict on Prime Minister Theresa May's Brexit deal, scheduled for tomorrow.

On the Singapore economic docket for the week will be Wednesday's retail sales figures for October, and Thursday's release of the third-quarter unemployment rate.

A number of economic data releases for last month are due towards the end of the week in China, including industrial production and retail sales figures for the month on Friday. In Japan, gross domestic product figures for the third quarter are due today, while the producer price index (PPI) for last month will be out on Wednesday.

Across the Causeway, industrial production figures and retail sales and unemployment figures for October will be released this week.

A slew of key economic data for last month will be out in the US this week, including the PPI tomorrow, inflation figures on Wednesday and retail sales numbers on Friday.

A version of this article appeared in the print edition of The Straits Times on December 10, 2018, with the headline 'Markets may end year on a strong note'. Print Edition | Subscribe