US markets
US equities rose Monday on last week’s US-China trade progress and surprisingly strong Chinese domestic economic data. The Dow industrials rose 0.4 percent, the S&P 500 gained 0.7 percent, and the NASDAQ was up 0.9 percent.
Risk assets were bolstered by news that Chinese industrial production and retail sales beat expectations, along with continued positive expectations after Friday’s US-China trade announcement. Perceptions that the Fed is unlikely to raise interest rates any time soon, and last week’s USMCA trade pact added to the favorable mood.
Among sectors, health care, energy, and technology were the day’s leaders, with defensive stocks lagging. Among companies in focus, Relmada Therapeutics, a pharma, rose 17.2 percent on an analyst upgrade linked to its new anti-depression drug. Dow component Intel, the semiconductor leader, eased 0.2 percent after announcing it will buy Habana, an Israeli chipmaker and leader in chips for artificial intelligence machines. Boeing dragged down industrials as it declined 4.3 percent on reports that it may suspend production of its troubled 737 Max jets. The company said it is working with regulators to restore the jet to service. FedEx, the shipping company, fell 1 percent on news Amazon banned it for prime shipments.
In US economic news, the New York Empire State general business conditions index rose to 3.5 from 2.9, but new orders slowed in December by 2.9 points to 2.6 while backlog orders fell deeper into contraction, down 5.6 points to minus 13.8. A separate US housing market report came in strong, with an outsized 6 point gain for December's housing market index to a completely unexpected 76. This is the highest reading in 20 years and easily surpasses levels during the peak of the subprime housing bubble 10 years ago.
These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose 47 cents to US$65.37, while gold rose 20 cents to US$1,480.70. The US dollar was off against major currencies. The US Treasury 30-year bond yield rose 4 basis points to 2.30 percent while the 10-year note yield rose 5 basis points to 1.87 percent.
European markets
Major European equities indexes surged Monday on the US-China trade deal, strong Chinese economic data, and the Conservative Party win in UK elections. The Europe-wide STOXX 600 rose 1.4 percent, the German DAX rose 0.9 percent, the French CAC gained 1.2 percent, and the UK FTSE-100 jumped 2.3 percent.
UK markets outperformed as they continue to bounce higher on relief that Brexit uncertainty appears ended with last week's surprisingly strong showing for Prime Minister Boris Johnson and his Brexit program. Every European sector rose, with basic resources leading on the upbeat China news. Hennes & Mauritz, the retailer rose 2.2 percent on upbeat quarterly results. Sports Direct soared by 31 percent on a positive earnings surprise. Banks also outperformed, while autos and oil & gas underperformed.
In economic news, December looks to have been another soft month for German economic activity. At 49.4, the flash composite output index was unchanged from its final November mark and so still short of the 50-expansion threshold. The disappointing headline was due to manufacturing where the flash sector PMI was 43.4, well below the market consensus and its 44.1 final November reading. By contrast, services (52.0) saw activity rates pick up slightly versus the previous month (51.7).
In a separate report, Eurozone business activity also ended 2019 on the soft note. At 50.6, the flash composite output index was a little stronger than market expectations but unchanged from its final November reading and too close for comfort to the 50-expansion threshold. The headline print was held in check by manufacturing where the flash sector PMI dropped from November's final 46.9 to just 45.9. Although this was only a 2-month low, the output sub-index slumped from 47.4 to 45.8, its weakest outturn in more than seven years. The services flash PMI was up 0.5 points versus its final November outturn at 52.4, a 4-month high.
Asia Pacific markets
Major Asia markets posted mixed results Monday, with investors reacting to better-than-expected Chinese data but still wary about the outlook for US-China relations after the countries agreed Friday to “phase one” of a trade deal.
After underperforming regional peers last week, Australia’s All Ordinaries index had the strongest response to the positive trade news on Monday, closing up 1.6 percent, while the Shanghai Composite index also recorded a solid gain of 0.6 percent. Japan’s Nikkei and Topix indices, closed down 0.4 percent and 0.2 percent respectively after flash PMI data showed further weakness in economic conditions so far this month, while Hong Kong’s Hang Seng index gave back some of the 4.5 percent gain it made last week, closing down 0.7 percent Monday.
Chinese activity data were the main highlight of the regional data calendar Monday. Industrial production advanced 6.2 percent on the year in November, rebounding from growth of 4.7 percent in October and well above the consensus forecast of 5.0 percent, mainly reflecting stronger growth in the manufacturing and mining sectors. Retail sales grew 8.0 percent on the year, up from 7.2 percent previously and stronger than the consensus forecast of 7.6 percent, while fixed asset investment grew 5.2 percent year-to-date, unchanged from the rate recorded previously and matching the consensus forecast.
Preliminary PMI estimates for December suggest conditions in the Japanese manufacturing and services sector remain subdued. The flash estimate for the Japan manufacturing PMI headline index for December came in at 48.8, little changed from the final estimate of 48.9 for November. The equivalent index for the services sector was 50.6, up from 50.3 in November, with the composite index unchanged at 49.8. Japan’s Tertiary Industry Activity index, also published Monday, showed weaker conditions in the services sector in October, in line with previously published PMI survey data and largely reflecting the increase in consumption tax rates at the start of the month.
India's wholesale price index increased by 0.58 percent on the year in November, picking up from 0.16 percent in October. The increase in WPI inflation mainly reflected a stronger increase in food prices and a smaller drop in fuel prices.
Looking forward
On Tuesday in Asia/Pacific, Singapore merchandise trade data, Australia home loan data, and Reserve Bank of Australia meeting minutes are due. In Europe, UK labor market and UK industrial trends reports are scheduled. In North America, Canadian manufacturing sales, US housing starts, US industrial production, and US JOLTS (job openings) are scheduled.
