Amplify Weekly Strategy: 3rd - 7th December 2018

Amplify Weekly Strategy: 3rd - 7th December 2018


Calendar highlights...


Monday: CN Caixin Manufacturing PMI, JN/SP/IT/FR/GE/EU/UK/CA/US Manufacturing PMI, US ISM Manufacturing PMI, Construction Spending, Total Vehicle Sales, Fed's Clarida, Quarles, Williams, Brainard, BoE's Haldane speak


Tuesday: AU RBA Rate Decision, JN 10-yr govt bond auction, FR Budget Balance, SP Unemployment Change, UK Construction PMI, EU PPI, US API Inventories, CA Labour Productivity, NZ GDT Price Index, Fed's Williams, BoE's Vlieghe speak


Wednesday: AU GDP, CN Caixin Services PMI, SP/IT/FR/GE/EU/UK Services PMI, SP 10-yr govt bond auction, US ADP Employment Change, ISM Non-Manufacturing PMI, Non-Farm Productivity, Unit Labour Costs Revisions, Final Services PMI, IBD TIPP Economic Optimism, Weekly DoE Inventories, Beige Book, CA Rate Decision


Thursday: AU Trade Balance, Retail Sales, GE Factory Orders, OPEC Meeting, UK 30-yr bond auction, US Trade Balance, Weekly Jobless Claims, Factory Orders, CA Trade Balance, Ivey PMI, BoE's Ramsden, Fed's Quarles, Bostic, Williams, Powell, BoC's Poloz speak 


Friday: JN Leading Indicators, GE/FR Industrial Production, FR Trade Balance, UK Halifax HPI, Consumer Inflation Expectations, EU Revised GDP, Final Employment Change, US Non-Farm Payroll, Unemployment, Average Hourly Earnings, Prelim University of Michigan, Consumer Credit, CA Employment Chance, Unemployment Rate, Fed's Brainard to speak


Saturday: CN Trade Balance (tbc), CPI, PPI, GE CDU Party Conference (Merkel replacement)


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Trade truce...


A successful dinner date between Donald Trump and Xi Jinping in Argentina resulted in a 90-day trade truce for any further escalation in tariff hikes. The compromise between the two nations has promoted a relief rally across assets this morning with equity markets gapping higher and the USD reversing some of the flight to quality bid of recent weeks.


Recapping the last 2-weeks and conditions look set for the Santa Clause rally to commence, an outcome that would be the best possible present US President Trump could deliver into year-end. The potent combination of a dovish turn from the Fed, alongside a temporary freeze on further confrontation with China (for now), removes two of the biggest factors that were at the heart of the October/November sell-off.

From a technical perspective, the S&P 500 future has hit a strong area of resistance at the 61.5% fib retracement of the all-time high to the 29th Oct low, in combination with the downtrend since 17th Oct. This level will be key to near-term price movement, a break of which may well open up a move back to the psychological 2850.00 mark. 



Friends of convenience...


Geopolitics never fails to be interesting and the high-five moment between Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman at the G20 was a clear indication of the precarious balance that the US must manage on the international scene in its pursuit of controlled oil prices.


In summary, Russia and Saudi have agreed to extend their existing OPEC+ deal into 2019 but importantly that are yet to comment on the exact specifics of any agreement. The meeting is well timed and comes ahead of Thursday's official OPEC gathering in Vienna. 


For now this verbal commitment, in addition to the temporary trade truce between the US and China, has re-calibrated the unbalanced supply and demand fundamentals that have created one of the largest sell-offs ever in the crude market but the question remains now that are OPEC+ doomed to fail if they now don't deliver!


Usual rules apply for the run up to the OPEC meeting in that press leaks and sources are to be expected well in advance of the meeting and at this point I would feel more confident on a further recovery in prices once more details are known.


Out of the frying pan into the fire...


The UK PM returns from the G20 to address domestic issues this week with her Brexit plan back under scrutiny as today Attorney General Geoffrey Cox addresses parliament. The Sunday Times reported this weekend that Cox's advice warns that the UK could be trapped "indefinitely" in a customs union with the EU, citing a letter to cabinet minister in November and it is this specific element of the deal that Brexiteers and opposition alike are so unhappy about, posing a substantial risk to the Brexit process. 



Here are two excellent graphics from Nordea to help make sense of the process if the "meaningful vote" were to fail and the subsequent timelines thereafter. You can access their full report HERE and I strongly recommend a read when you have time.



When push comes to shove...


Further positive developments in Italy have seen the 10-yr government bond yield spread over bunds continue to tighten. The latest development comes as PM Conte signalled optimism that his government would reach an agreement with the European Commission on the country's budget proposals. 



Although this is net positive short-term I would have it a guess that we are still a long way from a palatable solution that will keep both the League and Five Star happy. Instead, I would look to the USD to be more a driving force this week rather than the EUR on this news.


CB speakers look to readdress the balance...


An important consideration for this week is a plethora of speakers from the Federal Reserve and the Bank of England. This is a conscience measure by both central bankers as they look to manage the new "neutral rate" communication in terms of the former and the impact of Brexit for the latter. 


For the Fed their latest summary of economic projections will be released next week alongside the much anticipated fourth rate hike of the year (FFR pricing 87% probability) and focus will be squarely on the rate trajectory for 2019 and beyond.



For a full rundown of what the desk is looking at for the week ahead you can review our market briefing delivered this morning HERE.


Have a great week.


Regards,

Anthony


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