Day Ahead: Top 3 Things to Watch
1. Nonfarm Payrolls Expected to Rise 200K
The labor report will, as usual, be the likely driver of the market tomorrow.
The Labor Department releases the November numbers at 8:30 AM ET (13:30 GMT).
On average, economists expect that nonfarm payrolls rose 200,000, down from October.
The unemployment rate is forecast to stay steady at 3.7%.
Average hourly earnings, which will be especially important for those looking at possible Federal Reserve rate hike in 2019, are expected to tick up by 0.3%.
At 10:00 AM ET, the University of Michigan will release its preliminary measure of consumer sentiment. Economists expect the index to tick down to 97.1.
2. OPEC Decision in Question
Oil traders will be closely watching to see if OPEC and Russia agree to a production cut tomorrow.
Crude oil fell today as a tumble in equities and hesitance from Russia to back any supply reduction hurt sentiment.
The United States, Saudi Arabia and Russia have raised their oil production to record highs in recent months, turning out about 11 million barrels per day of oil.
“(T)he market’s attention is totally on OPEC,” said Tariq Zahir, managing member at Tyche Capital Advisors, an oil-focused fund in New York. “The Russians are looking they don’t want to give in to a big cut. There’s also a huge risk-off on Wall Street that’s adding to the heat on oil.”
3. Big Lots Reports Earnings
Although the earnings calendar is almost empty tomorrow, there are still some more retail numbers to be had.
Big Lots (NYSE:BIG) reports before the bell, with analysts predicting a loss of a penny per share on sales of more than $1.1 billion.
Shares have been volatile, but the stock is down in the last three months.
CNH bid, JPY offered as Trump backed China’s upbeat comments on trade
- Forex today witnessed mild risk-on with Chinese yuan gaining ground against the greenback and JPY crosses on the rise.
- Fed is considering the wait-and-see approach on future rate hikes, according to the Wall Street Journal.
- President Trump agreed with China’s Commerce Ministry that a trade deal could be reached within the 90-day period.
- Forex today saw mild risk-on action with Chinese yuan pushing higher against the greenback and JPY crosses picking up a bid, tracking mild gains in the Asian equities.
The Dow Jones Industrial Average (DJIA) which was down more than 700 points at one point Thursday, staged a V-shaped recovery after the Wall Street Journal (WSJ) reported that the Fed is considering whether to signal a new wait-and-see mentality at their December meeting.
The late recovery in the US stocks likely put a bid under the Asian equities. Major names like Japan’s Nikkei, Shanghai Composite, South Korea’s Kospi reported moderate gains. As a result, JPY crosses regained poise.
Notably, the AUD/JPY rose 0.10 percent to 81.69, having clocked a low of 80.93 in the overnight trade.
The risk assets may have also received a boost from Trump’s tweet, which China’s comments on their commitment to achieving a trade deal.
It particularly helped the CNH (offshore yuan exchange rate) push higher against the greenback. The USD/CNH was looking north, having witnessed a falling wedge breakout in early Asia. The bullish pattern, however, failed after Trump tweeted his take on a trade deal, and the pair fell to a session low of 6.8657.
Meanwhile, the USD/JPY extended its overnight rebound from the all-important 100-day MA support to levels just below 113.00. BOJ’s Kuroda ruled out additional stimulus, but at the same time squashed hopes of near-term taper.
Looking forward, the risk assets may cheer Trump’s tweet and reports stating that Fed officials are considering signaling a wait-and-see approach on rate hikes next year. As a result, the US dollar may remain on the defensive and JPY crosses better bid ahead of the US non-farm payrolls and wage growth release.
As of writing, the Federal-funds futures used to place bets on the course of rates, show just a 7.9% chance that there will be three rate increases by June 2019, down from 30% a month ago, according to the Wall Street Journal. That rate hike probability would slide even further if the wage growth figure prints well below estimates.
Dollar struggles on Fed pause talk ahead of jobs data
The dollar struggled to recover in Asian trade on Friday, hobbled by fresh speculation that a widely expected rate hike later this month could be the last before Federal Reserve hits the pause button on its tightening cycle.
Investors have been alarmed by recent sharp falls in U.S. treasury yields, with an inversion of the yield curve signaling a sharp economic slowdown or even a recession down the road.
Their immediate focus was on November U.S. non-farm payrolls, unemployment and wage data due to be released later on Friday for clues to how the world’s top economy is faring.
“Arguably, one of the strongest parts of the U.S. economy has been the labor market,” said Chris Weston, Melbourne-based head of research at foreign exchange brokerage Pepperstone. “If we see any cracks appearing in there, the U.S. dollar will start to fade off.”
Dollar investors were given more reason to be cautious after the Wall Street Journal reported Fed officials are considering whether to strike a wait-and-see attitude after a likely rate increase at their meeting in December.
The dollar index .DXY, which measures the greenback against a basket of six major peers, was virtually flat at 96.802. The index shed 0.3 percent during the previous session, closing at one-week low and down 0.9 percent from a 17-month peak hit on Nov. 12.
The benchmark U.S. 10-year Treasury yield US10YT=RR was last at 2.896 percent after dipping overnight to its lowest level since late August.
The dollar has slipped after Fed Chairman Jerome Powell said last week that U.S. interest rates were nearing neutral levels, which markets interpreted as signaling a slowdown in rate hikes.
If the Fed raises interest rates as expected at its Dec. 18-19 meeting, it would be the fourth hike this year, and investors are focused on how much further the tightening cycle has to run.
“The guidance going forward will be key to yields and equity market moves, which right now foreign exchange markets seem to be reacting to,” said Bart Wakabayashi, Tokyo branch manager at State Street Bank.
Stock Market News
Huawei CFO to appear in Canada court in U.S. extradition case
A top executive of China’s Huawei Technologies Co Ltd who is under arrest in Canada is set to appear in a Vancouver court on Friday for a bail hearing as she awaits possible extradition to the United States.
Huawei CFO Meng Wanzhou, 46, who is also the daughter of the company founder, was arrested on Dec. 1 at the request of the United States. The arrest, revealed by Canadian authorities late on Wednesday, was part of a U.S. investigation into an alleged scheme to use the global banking system to evade U.S. sanctions against Iran, people familiar with the probe told Reuters.
The news roiled global stock markets on fears the move could escalate a trade war between the United States and China after a truce was agreed on Saturday between President Donald Trump and Xi Jinping in Argentina.
Tesla shares crossed a key milestone, potentially saving the company a lot of money
- Shares of Tesla are trading above the conversion price on $920 million in debt due in March 2019.
- It is the first time the stock has closed above that price since CEO Elon Musk’s infamous “funding secured” tweet.
Tesla’s shares hit a key milestone on Thursday that considerably eases pressure on the company.
Shares closed around $363 on Thursday, higher than the conversion price of $359.88 per share on the $920 million in convertible bonds due in March. It was the first time they closed above that price since August 8, the day after CEO Elon Musk issued his infamous tweet about having already secured the funding necessary to take Tesla private.
The stock has been under pressure since. Musk abandoned the plan by the end of August and was subsequently sued by the Securities and Exchange Commission. The two parties settled in October.
But Tesla surprised investors that same month with a profitable third quarter, giving hope that the company’s production rates will improve. Musk said he now expects Tesla to be consistently profitable and cash flow positive. Before the October report, Tesla had posted a quarterly profit only twice since going public in 2010.
Tesla may choose to pay off that debt with a mixture of half cash and half stock, Bloomberg reported, citing documents. Using both cash and stock to pay off convertible debt might signal that Tesla is confident it can consistently generate cash and profits.
Tesla declined to comment to CNBC.
Crypto Prices Plunge 10%; Down More Than 90% From Record Highs
Cryptocurrency prices plunged more than 10% on Friday. Nearly all major cryptocurrencies are now down at least 90% from their all-time high, the latest data from OnChainFX showed.
Bitcoin lost 13.00% to $3,419.6 by 1:31 AM ET (06:31 GMT) on the Investing.com index. Ethereum plunged 19.1% to $86.68, and XRP dropped 12.2% to $0.30396 on the Poloniex exchange.
Litecoin also slid 14.6% to $25.999 on the Bitifinex exchange.
Among the 15 largest digital coins by circulating market cap, 11 of them have declined by more than 90% from their respective record highs, data showed.
Digital coins have fallen dramatically in recent weeks, with news of regulatory scrutiny and a hard fork in Bitcoin cash cited as major headwinds for the crypto industry.
In other news, the U.S. Securities and Exchange Commission (SEC) posted an update on Thursday regarding the approval process for a bitcoin exchange-traded fund (ETF).
“The Commission finds it appropriate to designate a longer period within which to issue an order approving or disapproving the proposed rule change so that it has sufficient time to consider this proposed rule change,” Eduardo A. Aleman, assistant secretary in the SEC, said in the release.
Meanwhile, local media outlet The Japanese Times reported that the National Police Agency in Japan registered nearly 6,000 suspicious cryptocurrency transactions so far this year.
This figure reflects an 800% increase over the 669 cases reported from April to December in 2017.
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