The first full week of trading in 2020 is likely to see choppy markets, principally because of uncertainty caused by escalating belligerent vitriol between the US and Iran.
Tensions between the two countries have ratcheted up several notches since last Friday’s killing of Iranian general Qasem Soleimani by a US drone attack on Iraqi soil.
The immediate reaction was a rise in oil prices, gold, the VIX, the Japanese yen and Bitcoin. Stock markets receded; all quite classic defensive plays. The question is will these moves continue or revert back to where they were? An additional take-way for those who might wish to commit these moves to memory would be to analyze the high beta stocks that suffered most in the mild stock market drawdown we saw on Friday. Why? Because I feel in 2020, we are going to see several choppier days and for me it is interesting to see what the markets consider most vulnerable in times of stress and of course where the smart money goes.
To this week, and while the markets will probably focus most on US/Iran tensions, there are of course some major data releases, Friday’s employment numbers from the US and Canada being the highlights.
Wind back one month and US payrolls delivered a scorcher of a number at 266,000 new jobs created, while Canadian employment figures disappointed at a loss of 71,200 jobs lost. Analysts expectations are for a robust US print of around 160,000 new jobs and for Canada to create 25,000 new jobs. USDCAD is likely to be volatile when these reports are released.
If the Canadian report turns out to be poor there is some room for manoeuvre from the Bank of Canada on interest rates. The US Federal Reserve, in minutes released last week, signalled that it is likely to keep US rates on hold between 1.5 and 1.75% for this year.
On Tuesday, Eurozone inflation numbers will be released with consensus for an uptick in Eurozone CPI to 1.3% for the month of December from 1.0% in November. Later in the afternoon, US ISM Non-Manufacturing/Services figures will be released with analysts also predicting an uptick to 54.5 for December from 53.9 in November.
We may get clues for the Non- Farm Payrolls number when US ADP employment numbers are released on Wednesday afternoon expected at 160,000 New jobs created.
Thursday morning and all eyes will be on China as CNY Consumer price inflation will be announced. Expectations are for a rise from 4.5% to 4.7% Y/Y for December. Outgoing Bank of England Governor Carney will also give a speech in London on Thursday morning.
A lot of money can be made and lost in the first few weeks of a trading year. This week, I will remain a cautious observer as the shocking events of last Friday and ramifications to markets work their way through. There will be plenty of opportunities to trade in the weeks and months ahead.
Good luck and good trading!
Ben Robson is the CEO of Spectrex Commodities and author of Currency Kings- How Billionaire Traders Made Their Fortune Trading Forex And How You Can Too.
