Rebound In Equities, Dollar Strengthens,

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Rebound In Equities, Dollar Strengthens,

Equities Surge On Earnings, The NFP Report Boost The Dollar

Global equities are rebounding from their October lows as strong earnings sweep the globe. The US market is leading with gains greater than 6.5% as the week closes out, and they are well supported. Not only are earnings positive the outlook is brightening as trade tensions between the US and China appear to be thawing. US President Donald Trump and Chinese President Xi Jinping has both issued statements to the effect pre-meeting contact has been positive, and that both are committed to a mutually beneficial improvement in trade relations.

On the earnings front, reports from Exxon and Chevron helped spur buying appetite as the week closed out. Shares of both stocks surged more than 2.5% on better than expected earnings reports even as oil prices hover at long-term lows. The reports are good because both companies report increased production, more efficient operations, and robust CAPEX spending.

Non-Farm Payrolls Blew Past Expectations

On the economic front, the US Non-Farm Payrolls report blew past expectations and reveal increasing pressure in wage inflation. At the headline US payrolls increased by 250,000 and well above the 200,000 that was expected. The previous two months were revised but the -16,000 in September and +16,000 in August canceled each other out. On average, the US has been adding jobs at a robust 218,000 per month over the past year and not expected to stop anytime soon.

The gains were driven by hiring in most segments, led by healthcare, manufacturing, construction, transportation, and warehousing. The LPR, a measure of the work force relative to population size, also increased, rising 0.2% in the last month, but the gains are negligible and flat YOY.

Wage Inflation!

The news that really caught traders attention though was the wage data. The average hourly wage increased by $0.05 over the last month to $27.30 and is up 3.1% YOY. The YOY comparison is important to note because it shows strong wage gains above the FOMCs 2.0% target and the pace of acceleration is increasing. The 3.1% posted for this month is 0.2% higher than the last month and another reason to expect FOMC tightening in the next two meetings.

The EUR/USD shot higher on Thursday on news the ECB and UK had reached an agreement on Brexit for financial services companies. The news sparked a major rally which carried the pair up an entire handle in one day and the upward momentum carried through into Friday. The NFP, however, capped the gains at 1.1455 and sent the pair back to retest support. With an FOMC meeting just a week away this pair is more likely to trade sideways than anything else. The current range is 1.1300 to 1.1500 but I expect price to hover near 1.1400.

USD Strengthens, U.S. Equities Rebound, Risk-Off Hedges Unwind

US equity markets, at least for today, put tech sector regulation and the fear of an escalating trade war behind them. Investors were in buy-the-dip mode, but unwound Monday’s meltdown when reports suggested President Trump is not formally looking at options to address his concerns with the US’s major e-retailer. While trade wars concerns have not improved by any stretch of the imagination, fumes of fancy have reversed some of Monday’s carnage.

Indeed, equity markets are providing the broader sentiment gauge as USDJPY topped the charts at 106.65, 10-year yields rose to 2.79 %, and gold briefly slipped below 1330.00 as risk-off hedges unwound. But trading should remain quite volatile as the prospect of a trade war between the U.S. and China continues to cast a dark shadow over global capital markets.

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When it comes to trading these days, it feels like I’m playing a never-ending game of ring-a-bottle, putting way to much cash at work to win a big fluffy stuffed animal of equal or less value. There is no escaping the hamster wheel syndrome in a market dictated by headline risk.

Oil Markets

Oil prices have recovered as equity markets veered higher when focus shifted back to inventory concerns after the American Petroleum Institute (API) reported a surprise draw of 3.28 million barrels of US crude. While a highly unpredictable and volatile reading, it continues to provide a go-to litmus test for market sentiment.

But oil markets remain in a tangled web of headline risk while enormous speculative positioning and the fear of a crowded trade is keeping top side moves in check.

Gold Markets

Gold prices fell overnight as US stock markets rebounded after fears of a global equity rout eased as concerns of a more profound global equity sell-off decreased, and the US dollar strengthened. But with volatility and trade tension simmering, gold will remain supported on dips. Until a definitive headline materialises that their’s positive progress on the trade front, the enormous tail risk from the US Administration Section 301 investigations has the potential to send the market into an irreversible tailspin and will keep haven trades in play.

Currency Markets

The Japanese Yen

Keep calm and don’t lose the plot. JPY was trading less sensitive to the SPX given that de-FAANG’ing drove much of the move, so traders are viewing the overnight reversal as an opportunity to increase JPY longs.Trade war is still in play and the potential for a more raucous US-China affair remain, especially on the escalation around section 301, suggesting traders are not going to give up short USDJPY positions easily. Could be a case of “buy on cannons sell on trumpets. ” Short dollar-yen trade has been stirred but remains unshaken

The Euro

The euro was weighted down by the crosses. Unfortunately, the EURUSD , for the time being, remains an incredibly dull trade.

The Malaysian Ringgit

Risk sentiment is improving, and the ringgit will benefit this morning as the local unit is trading with a robust correlation to risk which if for the most part being framed by escalating trade rhetoric. While I expect US-China trade tensions to weigh on regional bourses and the looming election to dampen inflows, the MYR remains very isolated and will continue to trade rangebound ahead of this week’s key US NFP .

U.S. dollar strengthens as equities rebound

NEW YORK, Dec. 26 (Xinhua) — The U.S. dollar strengthened on Wednesday following equity markets’ rebound from one-and-a-half year low.

Stocks posted their best day in nearly a decade on Wednesday, with the all three major indices registering an increase of more than 4 percent.

Analysts said the stocks markets were showing sign of stabilizing, which helped lifted the dollar.

The dollar index, which measures the greenback against six major peers, increased 0.36 percent at 97.0577 in late trading.

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