Light trading is expected today as market participants leave hints that expectations remain in place for U.S. stocks to continue to march higher, while the U.S. dollar will soften in the new year. The limited economic releases this week should paint a picture that U.S. housing market’s is solid, manufacturing data is steadying, and consumer confidence continues to rise.
The S&P 500 index appears it will just fall short of a 30% gain this year, blowing away strategists’ expectations of an 11% rise. Stocks seem poised to march higher in 2020 as the Fed has clearly signalled, it will not be tightening any time soon, the U.S. consumer continues to impress, and as fears of both a complete collapse with global trade talks and Brexit have abated.
USD
The U.S. dollar has seen all its gains wiped away in the final quarter of the year and we could see that trend continue as the global re-acceleration gains momentum. With the Fed on hold and the rest of the world starting to have a brighter outlook, we could see more central banks look to abandon negative rates. The reasons for further dollar weakness in 2020 are growing, but the main remains that the Fed will be on hold for the foreseeable future and we should see the euro and commodity currencies outperform.
Oil
Oil prices continue to remain supported near frothy levels as tensions in the Middle East could see key disruptions in the region, shrinking U.S. stockpiles alleviate oversupply concerns and as the U.S. and Chinese look to wrap up the phase-one trade deal and more importantly signal further calm on the tariff front.
Energy traders are not putting too much weight on Russian energy minister Novak’s comment that “oil production cuts can’t be eternal.” Everyone knows the oil-production accord will not last forever and that it probably end sometime next year. It is amazing these production cuts have last this long already.
Gold
Gold’s latest surge is strictly happening because the U.S. dollar is weakening, and expectations are growing the greenback will continue to fall further in 2020. Both Europe and Asia are starting to show further signs of economic life and the dollar could weaken further as we start to see strong flows come to emerging markets.
Gold will still be a favored safe-haven next year when we see further 2020 presidential election risks surface, but for now the outlook remains higher because of the weaker dollar bias that was put in place as expectations shifted for the Fed to be on hold all of next year.