Emotional roller-coaster on US-China bets, US stocks to renew record at open

Asian stocks were better bid on Friday even in Hong Kong, after White House’s Kudlow said that a trade deal is ‘coming down to the short strokes’.

Nikkei (+0.75%) and Topix (+0.71%) recovered losses, the ASX (+0.86%) was pulled higher by improved appetite for mining stocks, as iron ore rose 3% in Dalian commodity exchange.

The Japanese yen and Swiss franc were the only losers against a broadly offered US dollar.

Gold eased below the $1470 an ounce and the sovereign bond purchases slowed.

WTI crude is taking over the $57 a barrel resistance, even though 2.2 million barrels were added to the US stockpiles last week, versus 1.5-million-barrel rise expected by analysts.

US and European futures gained on trade optimism.

FTSE (+0.45%) futures hint at a comfortably positive start above the 7300p level on improved oil and commodity prices amid encouraging trade news from the US front.

But the actual optimism is again based on unilateral comments from the US officials. What’s cooking in the White House may not look as appetizing to Chinese officials, who have made a clear statement this week that they won’t sign off on an explicit amount of farm purchases.

The threat of more tariffs is real, on the other hand. The US will likely add 15% tariffs on $160 billion worth of Chinese imports, if a partial deal is not inked by December 15. With this, there is more clarity on what would happen if the two countries didn’t come to an agreement within a month than what would happen if they did.

Investors seem willing to stomach the risks, however. Today’s optimism will likely push the US stock indices to fresh records at the opening bell. The S&P500 will likely open at an all-time high near 3108 level.

Also, encouraging economic data could further boost the sentiment in the New York session. The Empire Manufacturing index may have advanced to a six-month high in November, despite a slower industrial production in October, a lower capacity utilization and higher business inventories. And even bad data wouldn’t be too bad, as stock investors know that the Federal Reserve has got their back either way.

 

Euro carrying the weight of a three-year low inflation on its shoulders.

The euro emerged above the 1.10 mark against a broadly weaker US dollar. German GDP posted a slim 0.1% growth in the third quarter, just enough to prevent the Eurozone’s growth engine from slipping into an economic recession. But the economic outlook remains gloomy for the Euro area with inflation expected to have fallen to a three-year low. The October final read should confirm a 0.7% yearly rise in European consumer price index. A smaller number could immediately send the EURUSD below the 1.10 mark, while a positive surprise could hardly be sufficiently positive to revive the slightest hope of an improved inflation for the coming quarters. The European Central Bank (ECB) doves are here to stay. Decent 1.10-put options are due to expire today.

On the upside, a temporary dollar-driven recovery could push the EURUSD toward 1.1030, the minor 23.6% Fibonacci retracement on October sell-off, and to 1.1060, the major 38.2% retracement. But such positive move would mostly attract top sellers.

 

Fortunes are improving for the pound

Likewise, the pound’s advance against the US dollar is mostly explained by a broadly weaker greenback. Although yesterday’s retail sales data fell significantly short of analyst expectations, the kneejerk sell-off in sterling remained surprisingly contained.

With the support of an improved positive momentum, cable will likely test the 1.29-resistance before the closing bell. But unlike the single currency, the pound has the support of decent call options between the 1.29 and 1.30 levels. A move above 1.2895, the major 61.8% Fibonacci retracement on October decline, should confirm a stronger short-term positive trend and prepare the ground for a solid battle between the bears and the bulls near the 1.30 mark.