Friday, December 6, 2019

Investors remains cautious on US-China relations ; will US labour market data rebound today?

Tags
  • China
  • Dollar
  • Gold
  • NonFarm Payrolls
  • IPO

Market recap: Saudi Aramco’s IPO breaks largest IPO record

US equities inched slightly higher as investors remained cautious on the prospects of a US-China phase one trade deal and ahead of US labour market data set to be released today starting from 9.30pm (GMT +8). The DJIA gained 0.10%, the SS&P500 rose 0.15% and the Nasdaq inched 0.05% higher on Thursday. The dollar fell against major currencies aside from the Aussie on Thursday, as investors are likely waiting for the US NonFarm Payrolls dataset that will be released today to see if there will be a rebound in the US labour market after a slew of disappoint economic data from the US earlier this week. The Dollar Index fell for the fifth straight day, dropping 0.24% on Thursday.

OPEC members agreed to cut oil output by 500,000 barrels a day in Q1 2020, after its meeting on Thursday. But the decision still has to be ratified by OPEC+ today. It has also yet to be decided on how the cuts will be divided between the members. Brent Crude futures were 0.62% higher on Thursday.

Safe haven assets inched higher as investors hedged their risk against the volatility of US-China trade relations. The two superpowers gave conflicting signals on Thursday as US President Donald Trump said that trade talks between the two countries were progressing while Chinese officials reiterate that they want a rollback on existing tariffs as part of the phase one trade deal. Gold advanced 0.10% and the yen inched 0.09% higher against the greenback on Thursday. US Treasury yields gained on the day as well, with benchmark 10-year yields gaining 4bps to 1.81%.

Asian stocks look set for gains on Friday morning. The Nikkei, Hang Seng Index and Straits Times Index opened Friday's trading session 0.20%, 0.49% and 0.18% higher.

Saudi Aramco priced its shares at 32 riyals, the top end of its marketed range. The pricing sets the company's value at US$ 1.7tn and makes it the world's largest IPO. The share offering was 4.65 times oversubscribed, raising US$25.6bn while receiving US$119bn worth of total bids.

Today’s Analysis: NonFarm Payrolls may disappoint despite boost from end of GM’s strike

Labour market and consumer sentiment data in the US is set to be released later today. NonFarm Payrolls, Average Hourly Earnings and Unemployment rate for November will be released at 9.30pm (GMT +8) while the Consumer Sentiment Index by the University of Michigan will be reported at 11pm (GMT +8).

But disappointing economic data earlier this week might suggest that today's data may also fall short of expectations. Automatic Data Processing Inc's (ADP) Employment Change survey that measures job growth in the private sector slowed sharply in November to 67,000, falling short of an expected 135,000 growth. Institute for Supply Management's (ISM) manufacturing Purchasing Managers' Index (PMI) for November was also worse than expected, as the sector contracted faster at 48.1 instead of economists’ forecasts of 49.2.

ISM non-manufacturing PMI disappointed as well, with growth slowing to 53.9 instead of economists' expectations of 54.5. But leading indicators from the non-manufacturing PMI report signalled that employment and new orders in the sector may be accelerating.

Although NonFarm Payrolls for November will likely get a boost of roughly 46,000 thanks to the strike at General Motors' (GM) ending in October, it may still fall short of expectations as employment in the private sector and manufacturing sector have both slowed. Economists forecast NonFarm Payrolls in November to grow to 183,000 from 125,000 in October, but it may be more likely that NonFarm Payrolls will grow less than 180,000 instead.

Today's consumer sentiment index will likely be influenced by the US-China Trade War and economic slowdown in the US. While economic data earlier this week was rather weak, the US economy has shown signs of recovery since October. Also, with officials from US and China signalling that the two countries are getting closer to a phase one trade deal, consumer sentiment should improve in December. But as economists expect the University of Michigan's consumer sentiment index to grow marginally to 97.0 from 96.8 in November, the dollar should remain little changed if it's within expectations.

If NonFarm Payrolls disappoint while consumer sentiment is within expectations, the dollar is likely to fall, as a weakening labour market will no doubt weigh on future consumer sentiment. EUR/USD is likely to then rise towards 1.1121’s level. But if NonFarm Payrolls beat expectations, then expect the greenback to gain momentum against the euro, pulling EUR/USD lower towards 1.1092’s level.