The U.S. Week Ahead (Dec 16-20): Uncertainties Give Way Ahead Of The Holidays

While a handful of lingering event risks have subsided somewhat this past week, market participants are generally gearing up for another heavy calendar of activity ahead of the holidays.

Uncertainties over the departure of the UK from the European Union, or Brexit, as well as U.S.-China trade relations each have eased back a bit, with the general election victory of Boris Johnson and his party, as well as U.S. President Donald Trump’s s sign-off of a so-called ‘phase one’ agreement.

Analysts at Janney Montgomery noted that although the UK election provided the global financial markets with clarity about Brexit, “particularly after the solid win by the conservative party,” many investors are now considering what that exit will mean for the UK, “including more expensive goods and possible economic pressures.”

Meanwhile, risk appetite continued to surge early Friday, amid the steps taken to avert the U.S.’s scheduled December 15 tariffs on imported Chinese goods, as prices of U.S. Treasuries fell across most of the yield curve.

Janney Montgomery added that President Trump’s sign-off on ‘phase one’ of trade negotiations “overshadowed negative comments later expressed by China’s foreign minister about political stances the U.S. has taken.” However, the combined actions show that this US-China trade situation has “many layers that can stir up volatility in risk assets.”

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By Friday’s trading session, the yield on the 10-year U.S. Treasury note was bid at around 1.82% after ending Thursday at 1.90%–a jump of 43 basis points from its most recent trough of 1.47% set at the start of September.

Meanwhile, the economic calendar in the week ahead is chock-full of salient data, including IHS Markit’s flash reading of its Manufacturing and Services Purchasing Managers’ Indexes (PMIs), existing home sales, as well as a final reading of gross domestic product (GDP) growth for the third quarter of 2019, personal income and spending for November and the latest measure of the Personal Consumption Expenditure (PCE) Price Index.

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The author does not hold any positions in the financial instruments referenced in the materials provided.


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