USD and Asian stocks kick off new year lower

Summary:

• US dollar moves lower against its major G10 peers

• Chinese stocks fall across the board after manufacturing PMI fell below 50 

• Oil prices trade almost 1.5% lower

US dollar falls

The first trading day of the new year has brought widespread weakness of the US dollar which is trading higher only against Antipodean currencies at the time of writing. Its relative outperformance against AUD and NZD stems from a disappointing PMI reading from China. The Chinese data has also increased demand for safe haven currencies such as JPY. At the same time gold prices are experiencing an increased demand as well being traded 0.4% higher. What is standing behind USD weakness? Well, it seems that arguments are the same - possibly less hawkish Federal Reserve and the most recently the US government shutdown. Neither of these events is expected to be set aside in the near-term therefore one may expect that the dollar may struggle in the upcoming days. Looking through some technical charts it is worth paying attention to the USDJPY as the pair has been performing in line with our earlier calls. Namely, the USDJPY has been falling after it broke through the trend line two weeks ago. The target for bears might be set at 108 where some traders might decide to cash in on their recent shorts.

The USDJPY is trading lower on the day (ca. 0.5%) on the back of a higher demand for safe haven assets. Source: xStation5

Chinese PMI disappoints

China’s manufacturing sector unexpectedly slowed down in the final month of the past year being burdened with a US-China trade war. A private survey showed that PMI slipped to 49.7 from 50.2 last month entering the contraction area for the first time in 19 months. The market consensus had looked for no change. The details reveal that both new orders and new export orders showed contraction. Thus, one may arrive at a conclusion that we saw a decrease both in foreign and domestic demand. Nevertheless, it needs to be aware that this survey focuses on small and medium-size enterprises which tend to be more export-oriented. Let us notice that at the beginning of December Donald Trump and Xi Jinping agreed to a 90-day ceasefire which delayed the planned US increase of duties on $200 billion Chinese goods. In response to the gloomy release stocks in Asian are falling significantly with the Hang Seng (CHNComp) falling roughly 3% and the Shanghai Composite moving down 1.2%. SP500 futures are trading 0.8% lower as well suggesting that a bear market in the United States is expected to unfold. When it comes to commodities it is worth noting that oil prices are trading almost 1.4% lower this morning matching weak sentiment seen in stocks. In this respect let’s mention a Trump’s tweet saying that “Gas prices are low and expected to go down this year. This would be good!” 2019 seems to be another bumpy year for the oil market as US output keeps rising and the global economy is stuttering.

The Hang Seng has finally moved below 10000 points, the sign of a deeper pullback in the foreseeable future. Another target bears might be aiming for is set at 9100 points. Source: xStation5

In the other news:

• Chinese President Xi Jinping said that the country would not slow in implementing reforms and added that China had pushed more than 100 important reforms in 2018

• Australia’s CBA/Markit manufacturing PMI for December slid to 54 from 54.6 compared to a preliminary value of 53.7