Advertisement
|10 December, 2018

U.S. stocks on track for worst December in 16 years

Hussein Al Sayed is the Chief Market Strategist for the Gulf and Middle East region at FXTM, and host of the popular evening business show on CNBC Arabia, Bursat Al Alam. Prior to his current role, Hussein spent many years working in the finance sector as a dealer, trader and analyst in equities, credit and foreign exchange markets. He holds a BA degree in Banking and Finance from the Lebanese International University and is experienced in both technical and fundamental analysis.

Website: http://fxtm.co/1XgYw2A

This week is also a big one for the UK and its Brexit deal

December has so far been one of the worst year-ends for global investors in recent history. The S&P 500 has fallen 4.6 percent from the beginning of the month, and if it remains at current levels until year’s end it will mark the worst performing December since 2003. Neither the dovish statements we heard from the Federal Reserve’s policy makers nor the trade truce between U.S. President Donald Trump and his Chinese counterpart Xi Jinping provided signs of relief to the financial markets.

October’s sell-off was mainly attributed to fears of the Fed’s tightening policy. However, after Fed Chair Jerome Powell said rates are “just below” neutral, anxiety over higher interest rates is no longer justified.

The arrest of Huawei Chief Financial Officer Meng Wanzhou in Canada, following a U.S. extradition request, have created serious concerns that the truce between the two Presidents may end before the 90 days agreed upon.

Advertisement

This is occurring at a time when the global economy is experiencing a slowdown - and here comes the big threat. Bond markets have been more accurate than stock markets in predicting economic slowdowns. The short end of the U.S. Treasury yield curve already inverted last week and it looks like a matter of time before the long end of the curve inverts too. While this doesn’t necessarily indicate a recession is imminent, it’s a bold warning signal.

When looking at latest U.S. economic data, it doesn’t look bad. Despite the U.S. NFP missing market expectations coming in at 155,000, the unemployment rate remains at a nearly 50-year low. U.S. factory activity remains healthy according to the latest ISM figures, and similarly the service sector has reflected strong growth in November.

However, the U.S. economy won’t be able to sustain its growth levels when everywhere else is experiencing a slowdown, and the real test will be next year when Trump’s fiscal policy goes into reverse.

Equities in Asia resumed their sell-off from last week, while Europe, along with U.S. markets, are also set to open in the red according to futures.

This week is a big one for the UK with the European Court of Justice expected to rule on whether the UK can cancel Brexit unilaterally. UK Prime Minister Theresa May is expected to face defeat in a House of Commons vote on her Brexit deal on Tuesday. Today we will get to know whether May decides to delay the vote on her Brexit deal, but the biggest unknown is what happens if MPs vote down the deal. Are we going to see a second referendum, no-confidence vote, a hard Brexit, or even a general election? This will keep Sterling in a very volatile mode until the clouds clear.

Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same.

Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 89% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.                                                                       

FXTM Brand: ForexTime Limited is regulated by the CySEC (licence no. 185/12) and licensed by the SA FSCA with FSP number 46614. Forextime UK Limited is authorised and regulated by the FCA (licence no. 777911). FT Global Limited is regulated by IFSC (license no. IFSC/60/345/TS and IFSC/60/345/APM).

Any opinions expressed here are the author’s own.

Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here.

© Opinion 2018

More From Markets