The markets prepare for the last major trading week of the year this week, with a plethora of issues still confronting market participants.
Though sentiment remains positive in global markets, risk appetite did wane last week, as concerns about US fiscal stimulus, Brexit, and the global economic recovery grew. The ASX200 continued its trend higher, finishing last week’s trade just in positive territory. SPI Futures are pointing to a flat start to the new week.
Here’s what to watch this week…
The market is still waiting for a US fiscal stimulus deal. After brief signs of progress on a package, negotiations have seemingly stalled once again, with Speaker of the US House of Representatives Nancy Pelosi last week flagging the talks between Republicans and Democrats would extend beyond Christmas. While US Congress did agree to a stop-gap spending bill last week that would avert a Government lockdown, US lawmakers are still apart on a more comprehensive spending bill, with the two sides currently divided on the issue of liability protection for employers.
Brexit has taken the markets to another cliff hanger, as pessimism grows that a trade deal between the UK and European Union before the end of the transition period at the end of the month won’t be forthcoming. The pound plunged last week, after UK Prime Minister Boris Johnson warned that no-deal by December 31 is a strong possibility. Unofficial deadlines have continued to be made and broken by both the UK and EU, with the core issues of fisheries, governance and the even playing field keeping negotiators from a deal.
US Federal Reserve
The economic calendar is the week ahead is jam-packed, but will be highlighted by the final meeting of the US Federal Reserve. No major change of policy is expected from the central bank, which has gone to extraordinary lengths in 2020 to stabilise the US economy and global financial markets during the COVID-19 crisis. However, there’s some speculation that the Fed could tinker with its asset purchasing program, and perhaps change its guidance to the market on policy and the economy, as signs grow the US economy’s recovering is slowing.
After what was a relatively light weaker on the data front last week, market participants prepare for what is the last major trading week for 2020 in the week ahead. On top of the US Federal Reserve meeting, the Bank of Japan, Swiss National Bank and Bank of England will hold meetings. China’s monthly data dump will also arrive in the middle of the week, as will a spate of global flash PMI figures, which ought to give a timely update on the globe’s economic recovery.
The Australian Dollar surged last week, as the Australian dollar/US dollar traded at highs not recorded since June 2018. Several factors are driving the pair higher right now. Chiefly, the Australian Dollar is benefiting from an uplift in global market sentiment, which has been boosted by hopes about a swift rebound in global growth next year. Soaring iron ore and commodity prices are also underpinning the Australian Dollar’s ascent, with the price of iron ore itself climbing towards and 8-year high last week. The AUD/USD is also benefiting from a weaker US Dollar, which itself continues to plumb multi-year lows.
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