Market Brief: Stocks join Hong Kong on the defensive

Another week begins with another swerve by investors back to havens

Stock market snapshot as of [12/8/2019 4:21 PM]

  • Another swerve back to havens whilst dumping risk is set to characterise the start of another uncertain week
  • It could also be the week when persisting Hong Kong protests ratchet up from being a simmering issue for investors to one that can no longer be ignored. Equity indices and futures in Europe and the U.S. visibly reversed direction following news reports—apparently supported by official videos—that China is beefing up its troop presence in neighbouring regions. One Chinese official cited a “critical juncture”, reiterating Beijing’s willingness to respond to weeks of escalating protests. Apparently, these are beginning to show signs of “terrorism”
  • Demand for G10 bonds swung higher again whilst gold and the yen saw another push against the Aussie, loonie, greenback and euro
  • In other crises, the volume of spending pledged by Prime Minister Boris Johnson is such that election speculation is only rising, whilst chances that a no-deal Brexit may be avoided seem to recede
  • Argentine assets tumbled after a populist opposition candidate trounced the moderate President Mauricio Macri in a primary election result. The peso instantly joined the ranks of the world’s worst performers this year following a 15% drop

Stocks/sectors on the move

  • Weight on Wall Street looks heavier than in Europe. There are deeper falls by blue chip U.S. banks like Bank of America, JPMorgan and Citigroup. They ceded 2.5%-3% earlier, helping drag the Dow and S&P 500 to losses approaching 0.8%. Morgan Stanley’s analysts downgraded forecasts of rivals’ earnings. Investors took the cuts, based on the impact of Fed policy loosening, as relevant to that brokerage too, leaving MS down 2%.
  • One line of defence holding on both sides of the Atlantic: the 200-day moving average. The threshold has clearly stemmed selling in both the S&P 500 and Germany’s DAX. The latter though has tested the line in recent sessions, having broken below it for two weeks in March
  • It’s a neat reminder that the concept of ‘support’ is valid as well as inherently fluid. SPX last tested below its 200-day in June. Breaches inevitably raise the intensity of negative sentiment until resolved. So whilst prices hold above 200-day averages, stabilisation can be swifter and the medium-term bias for gains remains, but the converse also applies
  • European luxury stocks stood out with falls of 1.5% to 2% for LVMH, Swatch, Gucci owner Kering and Britain’s Burberry. This took STOXX’s Consumer Discretionary gauge to a deeper fall than the broader market. Luxury purveyors have tilted towards Hong Kong and China for several years, sensitizing their shares to rising alarm in the former

FX snapshot as of [12/8/2019 4:21 PM]


  • The yen is king, the Aussie on the run, as is often the case when ‘risk-off’ takes hold with Asia-Pacific themes in focus
  • The Aussie is rising definitively against sterling though, with other majors as the pound continues to set downside milestones. On Monday it grinded to new 34-year lows according to data from Reuters and others
  • Then yen shows every sign of extending gains further, inching to a level that is the highest against the greenback since March 2018, whilst snapping presumed euro support stemming from April 2017 to sit on a monthly high printed in July 2011
  • Gold also signalled safety demand on the day, week and beyond. The spot has reversed earlier losses after last week’s 4% advance, resuming its threat against six-year highs above $1,505. Money managers have raised bullish bets on bullion to the most since 2016
  • Copper’s 0.7% plunge rounds off the impression of a market eyeing a full-bloodied global slowdown. Various data points now show the biggest bearish hedge fund positioning against the industrial metal for more than a decade, with Bank of America suggesting a surplus is possible in 2020

Upcoming economic highlights

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