Market Drivers December 2, 2019

• Risk takes off at the start of the week
• Kiwi breaks .6450
• Nikkei 1.01% Dax 0.687%
• UST 10Y 1.85%
• Oil $58/bbl
• Gold $1455/oz
• BTCUSD $7327

Europe and Asia:

• UK GBP PMI Manufacturing 48.9 vs. 48.3

North America:

• USD ISM Manufactuing 10:00

Risk assets exploded higher at the start of week’s trade after Chinese PMI data which was released over the weekend showed improvement.

Chinese Manufacturing PMI printed at 50.2 versus 49.5 rising above the boom/bust 50 mark for the first time in 6 months. The services PMI improved as well, inching to 54.4 from 53.1 the month prior. The news sparked a sharp rally in risk FX at the start of Asian dealing with kiwi continuing its march higher as the pair broke above the key .6450 resistance by London morning trade.

The one pair that did not participate in the rally was the pound which wallowed near the 1.2900 figure after the latest series of polls showed that Labor may be strengthening which could lead to a hung Parliament scenario. One issue that is helping Corbyn is the fear that any free trade deal with the US would result in the dismantling of parts of the National Health Service which appears to be sacrosanct with UK voters, especially the elderly. The elderly have been the biggest voting block for Brexit and therefore Tories, but if Corbyn can use the NHS issue as a wedge he may be able to weaken Johnson just enough to prevent the PM from gaining a full majority. For now, cable continues to tread water near 1.2900.

There is now a broad investor consensus that the worst of the Trade War jitters are behind us as global economies resynchronize into a new growth cycle while the US and China continue to negotiate and not aggravate the situation with a series of new tariffs. This view has supported both equities and risk FX over the past few weeks and has been bolstered by marginally better economic data in the OECD.

USDJPY has cleared the key 109.50 level and is now eyeing the very psychologically important 110.00 level – a figure it hasn’t seen since May of this year. Today’s ISM Manufacturing report may be the key data point to determine if the bulls can push the pair over the finish line. The market is looking for a slight improvement to 49.2 from 48.3 but if the number can print above the 50 boom/bust level it should unleash a powerful wave of buying as the numbers would confirm that growth has returned.