After 9 months of reveling in glory and positive accolades and personally taking credit for a rampant stock market, historically low unemployment and surging US growth, US President Donald Trump’s star suddenly lost its shine as US stocks gave back most of their gains for the year in a volatile 4th quarter. A combination of rising US interest rates, an unconventional foreign policy, a US/China trade war, Democrats seizing a majority in the House of Representatives, key personnel leaving senior posts in the White House and just plain old profit taking led to a rise in uncertainty and volatility, leading to last week’s “worst ever” day for US stocks on Christmas Eve, followed only two days later by the largest points gain in history for the Dow Jones Industrial Average. US stocks are likely to finish the year well off their highs, with many pundits suggesting that we are virtually in recession and several siding with Mr. Trump in saying that the Federal Reserve has lost its touch in managing US monetary policy.
So, what can we expect in the first week of 2019? One thing for sure is that leopards do not change their spots and so we can be sure to expect more of President Trump’s unique approach to politics, both domestically and overseas. If this leads to market uncertainty and volatility, then it can also lead to opportunity! Mr. Trump is a stock market bull and over the week-end, Mr. Trump has already “tweeted” that talks are going well with China so perhaps we can expect a positive final trading day to 2018. He seems to have influenced the Fed too and so we can expect a somewhat more accommodative position from the FOMC in 2019. Perhaps this will also be good for markets!
Despite the shortened trading week, we start 2019 off with some timely data releases from both the US and Canada. Friday’s employment reports from both countries are likely to be the highlight. On Wednesday. Canada will release the RBC Manufacturing PMI, expected around 54.0. On Thursday, we have US ADP Non-Farm employment numbers expected at +180k as well as manufacturing data from the US institute of Supply management expected at 58.4 for December versus 59.3 for November. Friday’s US Non-Farm Payrolls from the Bureau of Labor Statistics is expected to be around +181k, with the unemployment rate staying at 3.7%. Canada is only expected to add 5,000 jobs. On Friday evening, Fed Chair Jerome Powell will address the American Economic Association. Aside from USDCAD, other trading opportunities may center around Oil, gold and the British Pound.
Oil has taken a massive hit since October, losing 40% of its value. A combination of oversupply, President Trump’s jawboning and political pressure on the Saudi regime since the death of Jamal Khashoggi have all led to a capitulation in the price of oil. Cheaper oil, whilst not so good for producers and exporters, can stimulate economies dependent on imports. The other factor about cheaper oil is that it will squeeze out unprofitable producers, leading to supply constraints and ultimately a rise in the price of oil. At $45 per barrel I believe oil is due a bounce and longer term the risk/ reward favors a recovery in the oil price.
From “Black” gold to the shiny variety, and it’s true that XAUUSD has had an excellent run for the last three months. Having traded quite rigidly in a $1180oz - $1240oz range, Gold is now trading above $1280 oz. For trend followers and also for those who wish to diversify and place a portion of their portfolios in a “store of value” whilst markets remain volatile, I see major support around $1240oz and will be looking to buy into retracements of the precious metal around this level.
In the UK, the Christmas break gave UK Prime Minister Theresa May a chance to take a headache pill, but unfortunately BREXIT is a severe migrane and political infighting in her own party, not mention massive opposition in general from all parties as well as increasinging fatigue and distrust from the British public and businesses, as well as bleak forecast scenarios from the Bank of England, means that GBPUSD is probably going to suffer. When Theresa May won her vote of “No- Confidence” GBPUSD rallyed to the 1.2680 area before being sold off. With the current weaker dollar, GBPUSD has climbed marginally above that level. The UK parliament returns from holiday on 7th January. A lack of BREXIT consensus, politics and brutal rhetoric will undermine Prime Minister May, rock credibility in her Conservative Party and undermine confidence in the British Pound. I see GBPUSD lower in the first quarter of 2019 and will be selling levels above 1.2680.
Wishing all traders success in 2019.
Good Luck and Good Trading- Ben Robson