January 10, 2020 / 9:57 AM / 18 days ago

Daily Briefing: What a difference a week makes

At the end of last week, who would have thought world stocks would be back at record highs in a matter of days?

Traders work on the floor at the New York Stock Exchange, January 9, 2020. REUTERS/Brendan McDermid

A Mideast war seemed more likely, after the United States killed a senior Iranian general. But both sides have stepped back from conflict, and while the crash of a Ukraine Airlines jet could stir up trouble if accusations it was shot down are borne out, even U.S. President Donald Trump has said the Iranians could have made a mistake.

We’ve also had other reassuring headlines - Trump confirmed a Phase 1 trade deal will be signed with China on Jan. 15 and hinted he’d aim to get Phase 2 signed before the November presidential election.

Tech shares led gains on Wall Street on Thursday, with the S&P 500 technology sector jumping 1.1%, led by Apple, whose shares gained 2% after Chinese sales of iPhones jumped. MSCI’s world stocks index rose to record highs, Japan’s Nikkei rose half a percent, Europe is opening higher and U.S. equity futures are up.

The U.S. earnings season begins next week, and analysts generally expect a solid 2020. Big U.S. banks will be among the first to report next week and Refinitiv estimates their earnings growth at 11%. Emerging-market stocks have been lifted by the tide and stand within touching distance of recent 18-month highs.

Chinese equities have risen for six straight weeks. Even crisis-hit Argentina has been able to cut interest rates, albeit to a still-whopping 52%. The losers are gold, the yen and Brent crude, which has slipped to $65 from $71 earlier in the week.

Eyes turn now to the U.S. December payrolls data due at 1330. The government is expected to report that non-farm payrolls increased by 164,000 jobs. That would be a decline from November’s 266,000 but still above the roughly 100,000 jobs per month needed to keep up with growth in the working-age population.

Thursday’s weekly U.S. initial jobless claims were down to a five-week low at 214,000, following decent employment PMIs and ADP jobs data.

The dollar rose to a two-week high against the yen, the latter giving up all its gains achieved after the Iranian killing and the Iran’s retaliatory missile strikes. The dollar is now on track for its best week since November, up more than 1% versus the yen and more than half a percent against a basket of currencies.

One of the losers of the week not surprisingly is the Australian dollar, down more than 1% over the week as bushfires ravage its economy. However, it’s managed a 0.3% bounce on Friday as data showed retail sales had been better than expected in November, although that was before the fires broke out.

Cows stand in a field with a bushfire burning in the background, in Kangaroo Island, Australia, January 9, 2020 in this still image obtained from social media

The other currency in the headlines is the pound. Prime Minister Boris Johnson’s Brexit bill passed the House of Commons, as expected, making a Jan. 31 Brexit a done deal. Market attention has already turned back to the economy. Dire data and a promise by Bank of England Governor Mark Carney for a "relatively prompt response" have weakened the pound, putting a fall below $1.30 in sight.

European equities are opening higher, and few significant macro indicators or corporate announcements are due that might derail the upward trend until the U.S. job data.

British stocks may come under pressure after fashion brand Superdry and Joules Group issued a profit warning and B&M said sales growth slowed in the Christmas quarter. But Lidl GB said its sales rose 11% in the four weeks to Dec. 29 as the discount supermarket group outshone bigger rivals in what was otherwise a subdued Christmas period. JD Sports also said it expected annual headline pre-tax profit towards the upper end of the current market view.

Ryanair raised its guidance for full-year profit. RWE shares rose after a report it could get up to 2 billion euros in compensation for shutting down coal-fired power plants. Finally, check out a Reuters exclusive on Royal Dutch Shell looking to sell its oil refinery in Anacortes, Washington.

Emerging-market stocks extend their rally, rising 0.3% to bring weekly gains to 0.7% in their sixth straight week of gains - a winning streak last seen in June last year. The MSCI index was lifted by gains in heavyweights Hong Kong and Taiwan, but a rally in Chinese mainland stocks ran out of steam.

The emerging-market FX index fell after reaching its highest since June 2018 on Thursday. China’s yuan, Turkey’s lira, Russia’s rouble and South Africa’s rand were all flat against a steady dollar.

Data out of Turkey showed unemployment had fallen to 13.4% in the three months through November, further pulling away from the 10-year peak hit in the first quarter of last year. The EM currency index is on track for a 0.4% gain over the week, its six straight weekly rise.

 — A look at the day ahead from EMEA markets editor Sujata Rao. The views expressed are her own —

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