The shortened Thanksgiving-week turned out to be the worst Thanksgiving-week since 1939, with the S&P 500 losing around 3.5% over the past week to close at 3,632.5 points as stock markets closed early at 1pm in New York due to the holiday. The S&P 500 is down 10% compared to its high in September and entered into a correction. On Tuesday the US Commerce Department reported US home construction improved 1.5% in October. What might seem as good news after housing has stumbled in recent months as mortgages rates have climbed (the annual rate of home sales has declined by 15.3% since May) still couldn’t deliver much relief. The gains came entirely from apartments whereas constructions for family houses slipped 1.8% last month, showing that the ability to buy a home moves out of reach for more Americans. US markets were also scrutinized by investors about possible contagion from a global downturn, as markets outside the US showed further signs of slowdown. Worried investors rushed into treasuries, causing the yield on 10-year treasuries to stand at 3.039% on Friday, the lowest since September. More investors anticipate now a slowing of the FED with further rate hikes. While still anticipating a further hike of 25bp from the current target range of its benchmark interest rate of 2.00-2.25%, traders in derivative contracts are pricing in only a 0.33 percentage point tightening in 2019, e.g. just over one rate hike for 2019. With West Texas Intermediate crude slipping 6.3% on Friday, the Energy sector faced the greatest losses.
The dollar strengthened against all major currencies on Friday, closing at $1.1334 to the euro. Back by a strong US economy retailers were looking ahead to record five-day sales period over the Thanksgiving holidays. The sales numbers of the Black Friday could be an indication for investors of what awaits the retail industry after slowing growth rates over the past months. Volatility further increased in the S&P 500, with the VIX closing at 21.52 points. The Dow Jones closed at 24,285.95, giving up around 3% over the past week.
The FTSE 100 lost around 1% over the past trading week, closing below the 7000 points watermark at 6,950.82 as Brexit dominated (once again) the headlines. The biggest losers came as well from the Energy sector, lead by Premier Oil Plc (-11% on Friday). After solving the Irish border Brexit backstop, it was Spain that threatened to reach an agreement on the Brexit summit over a dispute about Gibraltar. However, the issue seemed to be dissolved as of Saturday afternoon. Investors shouldn’t stem too much hope from the summit, as the UK parliament will have to vote over the withdrawal agreement. The GBP strengthened against the euro to close at 0.88€ on Friday, however, it lost 0.6% to USD to close at $1.28. Short-sellers of the sterling were not much impressed by a rate-hike warning from BOE’s Saunders. Since this comment is assuming a smooth Brexit conclusion, this statement is far from nailed-on. UK 10-year bonds gained 5bps on Friday to yield 1.38% which is 104bps over Germany’s. The US premium over gilts ballooned to 174bps this month – the most since 1989.
A slight relief was seen at the pound-dollar one-month risk reversal, which climbed above -2 percentage points again. The sterling sentiment is at the most bearish levels since the Brexit vote in 2016.
Stock markets in Europe extended loss of last week. DAX closed at 11192 (-1.90%) after touching 2-year lowest level, detracted by financial (Wirecard) and tech (SAP) sectors’ Monday sell-off. Nevertheless, unsatisfying economic data did not prevent rebound on Friday: GDP reported minus growth of -0.2% and composite PMI 52.2, both missing forecasts. CAC saw similar path and dropped to 4946.95(-1.5%) after rally in auto (Renault) and banking constituents. FTSE MIB and IBEX concluded at 18714.9(-0.9%) and 8915.2(-1.5%) respectively.
Government bond yields declined across the continent. Benchmark 10-year Bund yield slid 1 bps for weak growth data. BTP 10-year yield dropped by 8 bps as a result of Brexit draft as well as outlooks for compromise on budget as ECB started Excessive Deficit Procedure. However, Rome met cold shoulder from institutional investors on Tuesday according to new investment linked bond sale order amount. Noticeably, Irish bonds remain concerned for no-deal Brexit given 10-year yield(1.017%) spread with Bund.
Euro failed to keep weekly uptrend on Friday against strengthening dollar and remained around 1.1336.
Rest of the World
Major retreat in Asia equity market happened after tech decline in US tech giants, i.e. Foxconn and Largan Precision the Apple suppliers. Recurring trade concern and energy sector suffering from oil price also contributed. Nikkei and Shanghai Stock Exchange Composite slipped 0.2% and 0.4% this week. Bearish mood still lingers in South Korea stock market—KOSPI lost 1.7% after previous foreign investors selling.
10yr JGB yield was little changed after decreased demand in recent auction suggested by low bid-cover ratio as well as CPI still missing inflation goal; October trade deficit grew and USDJPY gained slightly touching 113.
After PBOC’s suspension of reverse repo for 20 days, offshore Yuan edged lower in midweek. Official tone for monetary policy does not exclude further cut in interest rate or RRR.
No agreement of oil production curb was reached among OPEC this week and Brent dropped another 10%. After report of US crude oil inventory rise, WTI fell below 51 on Friday. After climbing above 1226, gold future reported 1223.20 on Friday under pressure of strong Dollar. Palladium has outperformed other metals due to large demand although sales of automobiles, for which the precious metal could be used as catalyser instead of platinum, have barely seen increase.
Last but not least, last week witnessed bell tolling for cryptocurrencies. Bitcoin alone lost 23% after another coins slip to 4343 against dollar, where further volatility is indicated as 50-day moving average is about to cross 200-day.
Next week spotlight will be shed on US Q3 GDP, Eurozone November price, inflation and October employment data, China November PMI. FOMC moments will fall on Wednesday. Equity market also looks forward to trade comments during G20 meeting.