Market Recap: S&P500 makes biggest weekly gain since early September
US equities made new record highs on Friday after consumer spending data beat economists' expectations and as investors continued to be optimistic about the US-China phase one trade deal. The Nasdaq ended Friday with its eighth straight day of gains.
US major indices jumped over the past week thanks to investor optimism for a phase one trade deal between the US and China. The S&P500 hit its biggest weekly gain since early September, spiking 1.65% over the week.
The Dollar Index gained thanks to the robust consumer spending data as well. Personal consumption for Q3 was revised up to 3.2% from a previous estimate of 2.9%. Both PCE and core PCE beat economists' forecasts, rising to 1.5% and 1.6% for November respectively. Sterling continues to face downward pressure from the prospects of a no-deal Brexit, falling just below 1.3000 against the dollar on Friday.
Safe haven assets were mixed on Friday, with gold rising while the yen fell against the dollar. But investors look set to shift towards riskier assets on Monday morning after US President Donald Trump said on Saturday that the US and China would be signing the phase one agreement very soon after a breakthrough on the trade deal. Gold was 0.17% lower and the yen was 0.02% weaker against the greenback on Monday morning as of 4.46am (GMT +4). US Treasuries ended Friday mostly flat.
Stocks in Asia started Monday's trading session higher ahead of the Christmas holiday break on Thursday and as we approach January 2020 where the US and China are supposed to sign their phase one trade deal. The Nikkei, KOSPI and Strait Times Index opened the day 0.44%, 0.18% and 0.13% higher. US equity futures were also slightly higher on Monday morning.
Important macro events this week will be the release of November’s durable goods orders and new home sales in the US, and the BoJ’s meeting minutes for its December monetary policy meeting. British Prime Minister Boris Johnson is expected to attempt to push his Brexit legislation through parliament today with his Conservative Party majority in the Commons. This week will be a relatively quiet week for traders, as most major exchanges will be closed on December 25th for Christmas.
Today's Analysis: The dollar looks set to gain if durable goods orders beat expectations
US Durable goods orders for November will be released at 5.30pm (GMT +4) today and economists are forecasting a 1.5% growth from October. The expected increase stems from a spike in aircraft orders for the month of November.
Boeing reported 63 orders in November, a jump from the 10 orders in October. Out of the 63 orders, 30 were 737 Max orders while the remaining were for its 787 models. As a result, the focus will be on ex-transportation and core capital goods orders instead. The end of General Motors' month-long strike in October is also likely to boost durable goods orders in November as well. In addition, the progress in US-China trade talks in November is also likely to push durable goods orders higher as well.
With the slew of upbeat economic data in the US, a better than expected durable goods orders would further signal to investors that the US economy is continuing to pick up. Implied probabilities for a Fed rate cut in 2020 has also diminished, with a Fed rate cut only probable after the Fed's September monetary policy meeting.
As durable goods orders in November is likely to beat expectations, investors will likely become more bullish on the US economy. Also, expect implied probabilities for a Fed rate cut to fall even more, which will drive the greenback up. As a result, expect the dollar index to rise, with the Dollar Index rising towards 97.89. But expect it to retreat slightly to 97.72's level as investors dissect the report, which will likely reveal that the driver of the dataset is from aircraft orders and GMs recovery from its month-long strike.