Intraday Market Thoughts

2018 in FX, Commodities & Indices

by Adam Button
Dec 31, 2018 14:28

The last day of 2018 is winding down with more conflicting signals. The latest China PMI showed just how hard tariffs are hitting, while Trump on the weekend hinted at progress in trade talks. Markets started the week relatively flat ahead of last week's madness. Normally we'd expect extremely quiet trade through New Years but this year-end has been anything but normal. Tomorrow is a holiday almost everywhere, and US data on ISM and jobs will be released on Thursday and Friday respectively. The charts below rank the performance of global indices, FX and commodities.

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2018 in FX, Commodities & Indices - Performance Excel 2018 (Chart 1)

President Trump teed up an upbeat start to the week after tweeting on Saturday that he had a call with Chinese President Xi and cited 'big progress made' on a comprehensive trade deal. Mid-level US officials will travel to China in the week of January 7 with 60 days remaining to broker a deal.

The optimism about a China deal was balanced by worry about Chinese industry after the official manufacturing PMI fell to 49.4 from 50.0. It was expected to remain unchanged. The drop is a fall to the lowest since July 2016. It was tempered by some good news in the services PMI at 53.8 compared to 53.2 expected.

The market is trying to sort out whether the global economy is simply slowing or grinding to a recession. There is concern about US industry as well but on Friday the Chicago PMI posted a reading of 65.4 compared to 60.3. That was in sharp contrast to a plunge in the Richmond Fed.

What will make the outlook going forward tricky is that the US Commerce Dept is shut down along with many other parts of the Federal government. That delayed Friday's planned releases of trade balance data and wholesale inventories. There's no sign of an end to the shutdown.

In Europe, Italy passed the 2019 budget after an acrimonious process. That ends this chapter but the seeds have been sewn for future problems.

Thank you all for your continued support and comments and wishing you a happy and healthy 2019.


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