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The arrest of Huawei’s CFO for allegedly violating trade sanctions was still the big story for the session as traders fretted this would reignite U.S.-China trade tensions despite the 90-day tariffs truce.

Higher-yielding currencies took some blows but the dollar was also terribly hit, especially since the latest batch of economic reports reflected how trade troubles are starting to bite.

  • U.S. November Challenger job cuts up 51.5% y/y
  • U.S. ADP non-farm employment change down from 225K to 179K in Nov
  • Canadian trade deficit widened from 0.9B CAD to 1.2B CAD vs. 0.7B CAD forecast
  • U.S. non-farm productivity revised from 2.2% to 2.3% in Q3
  • U.S. unit labor costs downgraded from 1.2% to 0.9% vs. 1.1% forecast
  • October U.S. trade deficit widened from $54.6B to $55.5B vs. $55.2 forecast
  • U.S. initial jobless claims at 231K vs. 226K estimate
  • U.S. ISM non-manufacturing PMI up from 60.3 to 60.7 vs. 59.1 consensus
  • October U.S. factory orders slumped by 2.1% vs. expected 1.9% drop
  • Canadian Ivey PMI down from 61.8 to 57.2 vs. 59.9 forecast
  • BOC Gov. Poloz reiterates weakening data and crude oil concerns
  • OPEC delayed oil output deal decision
  • EIA crude oil inventories down 7.3M barrels vs. projected 1.3M dip
  • Australia’s AIG construction index down from 46.4 to 44.5

Major Events/Reports:

Risk aversion extends in U.S.

The doom and gloom mood from the earlier trading session carried on for the first part of the U.S. session as Wall Street traders saw the arrest of Huawei’s CFO as a huge setback in U.S.-China trade relations.

Later on, stocks caught a reprieve on mostly downbeat U.S. data and more indications that the Fed could slow down its pace of tightening by next year.

  • Dow 30 index is down 79.40 points to 24,947.67 (-0.32%)
  • S&P 500 index is down 4.11 points to 2,695.95 (-0.15%)
  • Nasdaq is up 29.83 points to 7,188.26 (+0.42%)

A report on WSJ indicated that the Fed is likely to push through with its December hike but might switch back to wait-and-see mode in 2019. Softening inflation on account of the slide in crude oil prices could lead the Fed to dial down its hawkishness, but FOMC member Bostic noted that rates should proceed to neutral levels.

In his speech at the Georgia Economic Outlook series, Bostic said:

“I’m not seeing clear signs of overheating, nor am I seeing any indications of a material weakening in the macroeconomic data at the moment.”

Meanwhile, crude oil seemed unstoppable in its slide when news broke out that the OPEC would delay its decision on the output deal. Market watchers are also disappointed by the potentially smaller than expected cut of 1 million barrels per day. The cartel has another set of meetings due before the end of the week.

Mostly downbeat U.S. data

The latest batch of economic reports from Uncle Sam revealed that the economy may be starting to feel the pinch of higher borrowing costs and trade troubles.

Jobs figures were far from impressive, sending negative vibes ahead of the upcoming NFP release. The ADP non-farm employment change reading slipped from 225K in October to 179K in November, lower than the projected fall to 195K.

Challenger, Gray & Christmas reported a 51.5% year-over-year jump in job cuts for the same month to a total of 53,073 planned layoffs. A bulk of these came from General Motors’ plans to cut 15% of its workforce, and the agency signaled that this may not be the last of big companies’ cost-cutting efforts.

Factory orders in October slipped 2.1% versus the expected 1.9% drop while the earlier month’s reading was downgraded from 0.7% to a meager 0.2% uptick. This signals that businesses could brace for slower production in the months ahead as manufacturers have fewer orders to fill.

The U.S. trade deficit widened to its 10-year high from $54.6 billion to $55.5 billion in October, marking the fifth consecutive month that the shortfall is increasing. Not surprisingly, the trade gap with China widened by 7.1% to a record $4.3 billion as tariffs started to take their toll.

The only bright spot in terms of economic data released for the day was the ISM non-manufacturing PMI which ticked higher from 60.3 to 60.7 versus the estimated dip to 59.1.

Underlying data revealed that the gains were mostly spurred by higher production, new orders, and prices. The employment component, however, slid from 59.7 to 58.4 to reflect a weaker pace of growth, piling on downbeat expectations for the NFP.

Major Market Mover(s):

USD

The dollar took hits on all sides as the arrest of Huawei’s CFO puts a setback on seemingly improving U.S.-China trade relations and downbeat data further weighed on Fed tightening prospects.

USD/JPY sank from 112.62 to a low of 112.23 then pulled up to 112.54; USD/CHF is down from .9982 to a low of .9915 then climbed to .9924; EUR/USD is up to a high of 1.1412, and GBP/USD closed at 1.2775.

Commodity Currencies

The comdoll gang also found themselves behind the forex pack as risk aversion lingered in the financial markets.

The Loonie also got extra drag from not-so-upbeat remarks by BOC head honcho Poloz, the slide in crude oil due to the OPEC decision delay, and another set of weak reports. Ouch!

AUD/JPY is down to a low of 80.93 before pulling up to 81.32; NZD/JPY fell from 77.51 to 77.15; CAD/JPY slipped from 84.34 to a low of 83.56; EUR/AUD is up to a high of 1.5786, GBP/NZD is up to 1.8571, and GBP/CAD is up to 1.7115.

Watch Out For:

  • 11:45 pm GMT: Fed Chairperson Powell to speak at the Housing Assistance Council in DC
  • 12:00 am GMT: Japanese average cash earnings y/y (1.0% expected, 0.8% previous)
  • 5:00 am GMT: Japanese leading indicators