Analysts and economists could be forgiven for ignoring the various hard data metrics regarding the USA economy over recent months, as any negative hard data is simply ignored, whereas positive news appears to propel the U.S. equity markets to new heights. As an example; the country’s trade deficit worsened during October, according to the latest stats published on Tuesday; coming in at -$47b, as a consequence of record imports, to feed an economy approximately 80% dependent on consumers spending, whilst export levels remained stagnant. Equity markets fell, but in relation to the tax reform programme details, causing investors to doubt the implications for improved equity market profitability, not due to the widening of the trade balance.
In 2016, the total U.S. trade deficit was $502 billion, the country imported $2.712 trillion of goods and services whilst exporting $2.209 trillion. The 2017 deficit figure is expected to exceed this, projections placing the annual deficit at circa $550b. A quick comparison with Germany makes interesting reading; Germany’s trade surplus for 2016, from a country with approx. 25% of the population of the USA, rose to $270.05 billion, according to the Federal Statistics Office.
Similarly, the USA government runs a debt v GDP of 106% and currently faces a partial shut down of the government later this week, until the debt level is re-extended, with most economists suggesting that anything above 90% should set off alarm bells, as a comparison Germany’s govt. debt v GDP is currently 68%. A threat of a government shutdown would have (in previous years) caused investors in U.S. equities to panic, however, it’s such a common occurrence now that similar to the alarming: balance of payment figures, balance of trade figures, deficits, debt levels and the Fed having a balance sheet of circa $4.5 trillion, it hardly registers, or appears to effect investor confidence.
USA equites sold off on Tuesday, as the tax reform optimism faded whilst analysts crunched the numbers and began to read the fine print contained in the complete programme. WTI oil rose as the promised OPEC cuts dovetailed with data suggesting that USA stockpiles fell. Gold slumped, breaching the 200 DMA, as it plunged to a daily low of 1260, down circa 1.5% at one stage. The U.S. dollar made gains versus its main peers throughout the day’s trading sessions.
Moving aside the ongoing chaos and debacle of Brexit, European news mainly centred on encouraging PMIs released for the leading economies, including; Italy, France, Germany and the wider Eurozone. The U.K. services PMI, the most relevant to the British economy given its reliance on consumer spending, missed the Reuters forecast by coming in at 53.8, versus the expectation of 55, adding to the general mood of pessimism which Brexit is delivering. The British pound once again whipsawed through a tight bearish range versus the majority of its peers. GBP/USD closing down circa 0.2% on the day.
U.S.DOLLAR
Having now moved away from both critical 100 and 200 DMAs, both sited at circa 111.5, USD/JPY traded in a tight bearish/bullish range during Tuesday’s sessions, at one point falling by circa 0.2%, then rising by a similar amount, to end the day close to flat at 112.5, resting near the daily PP. USD/CHF rose through R1, eventually finishing up circa 0.2% at 0.986, just below the first level of daily resistance. USD/CAD initially traded in a bearish range, falling through S1 to then reverse, rising up through the daily PP, ending the day close to flat at 1.268.
STERLING
The pound whipsawed in a bearish range, versus many of its peers on Tuesday, GBP/USD lost 0.4% as it plunged through S1, to then recover to end the day down circa 0.2%. GPB/CHF fell during the European trading session, to then recover to end the day up circa 0.1% at 1.326. GBP/AUD lost up to 1% at one stage, with the Aussie reacting favourably versus its peers to a hawkish narrative accompanying the interest rate hold of 1.5%, announced by the RBA in early morning.
EURO
EUR/USD traded in a wide bearish range during Tuesday’s sessions; falling through S2 posting a weekly low of 1.180, to finish at circa 1.182. The 100 DMA sited at 1.799, was also close to being breached to the downside. Having recently breached the 200 DMA to the downside, EUR/GBP has failed to make gains versus one of its main peers, despite the Brexit chaos. Having breached R1 shortly after the European markets opened, the cross currency pair failed to maintain the level, reversing to give back the gains, closing out near to level on the day at 0.879, near to the daily PP.
GOLD
XAU/USD finally crashed through the 200 DMA during Tuesday, posting a low of 1260 from an opening price of 1277, a plunge of circa 1.5% at one stage during the day’s proceedings. After plunging through S3, price recovered to close out at an approx. six week low of 1265, below the 200 DMA at 1266, losing circa 0.8% on the day.
EQUITY INDICES SNAPSHOT FOR DECEMBER 5th.
• DJIA closed down 0.45%.
• SPX closed down 0.37%.
• NASDAQ closed down 0.19%.
• FTSE 100 closed down 0.16%.
• DAX closed down 0.08%.
• CAC closed down 0.26%.
KEY ECONOMIC CALENDAR EVENTS FOR DECEMBER 6th.
• EUR German Factory Orders n.s.a. (YoY) (OCT).
• EUR Markit Germany Construction PMI (NOV).
• USD ADP Employment Change (NOV).
• CAD Bank of Canada Rate Decision (DEC 06).
