Back when they were good, the line from an early U2 song went, “Nothing changes on New Year’s Day”. It would appear that Bono may have been on to something there, as financial markets seem set to continue the same themes as we closed with last year. Market sentiment remains weak and so the safe haven plays are benefitting. There may be warm words from both Washington and Beijing over the trade dispute, but there are concerns over a China slowdown as the weaker than expected official manufacturing PMI has been reflected in the Caixin number, both of which are now in contraction territory below 50. The trade dispute is finding warm words, but markets seem wary to take any positives from this too soon. The US Government remains in partial shutdown. A wild, wild ride in equities from the thin trading markets of Christmas silly season leaves a legacy of caution. Treasury yields are lower, so the dollar is suffering as yield differentials tighten, whilst the safety of the yen and Swiss franc mean that they are in favour. The euro is an outperformer as European spreads tighten as the Italian budget has passed through parliament, whilst sterling still trades with a Brexit handbrake firmly applied. The manufacturing PMIs are in focus today for European countries (the US is tomorrow) and the extent of a burgeoning slowdown will be the focus.
Wall Street closed the final session of 2018 with a gain of +0.8% on the S&P 500 (at 2507) which after a wild December left the market around -6% lower for the year. Futures are though back lower by -0.9% early this morning. In Asia, Japan was closed for public holiday, whist the Shanghai Composite was down -1.1%, whilst European markets are dropping again in early moves, with FTSE futures and DAX futures both around three quarters of a percent lower. In forex, the euro is gaining ground, whilst the safe haven yen is the big winner. The Aussie and Kiwi are underperforming. In commodities, there is a mixed look to gold (mildly higher) and silver (mildly lower), whilst oil is back over -1% lower once more as.
It is the first trading day of the year, so a time for manufacturing PMIs. The final Eurozone Manufacturing PMI for December is at 0900GMT and is expected to be 51.4 (unrevised from the 51.4 flash reading and down from 51.8 final reading from November). The UK Manufacturing PMI is at 0930GMT which is expected to fall back to 52.5 (from 53.1 in November). .
Chart of the Day – USD/CHF
The negative market sentiment running through markets is reflected through the Dollar/Swiss pair which is in decline as the safe haven Swissy finds ground. This is shown with three consecutive negative candles to end 2018 and a close below the confluence support around 0.9835 which was the December lows and the 50% Fibonacci retracement of the 0.9540/1.0128 rally. Closing clear of the 50% Fib level now means that a move to the 61.8% Fib level at 0.9764 is now on, whilst 76.4% Fib is at 0.9768. This is also the support of the old September highs and now look set to be tested. With a succession of lower highs in recent weeks this would suggest that rallies remain a chance to sell. Anything to the 38.2% Fib at 0.9903 is now a chance to sell. The last two highs have failed at 0.9875/0.9885, whilst the 50% Fib at 0.9835 is a basis of initial resistance this morning. A move above 0.9963 would abort the move lower.