Major US stock indexes rose moderately as investors reacted favorably to China's announcement of lower import tariffs on a wide range of products and US President Trump's announcement that Washington and Beijing would sign the first phase of their trade agreement very soon. Meanwhile, the DOW gained support from a spike in Boeing Co. (BA) after it became known that the aircraft manufacturer fired the CEO.

The Chinese Ministry of Finance said on Sunday that starting January 1, it will reduce import duties on more than 850 products, ranging from frozen pork and avocados to some types of semiconductors. The country is making efforts to increase imports amid a slowdown in the economy and a trade war with the United States.

Market participants also received several important macroeconomic reports. A Commerce Department report showed that orders for durable goods in the US unexpectedly fell in November. According to the report, orders for durable goods fell 2.0% in November after rising 0.2% in October. The sharp decline came as a surprise to economists, who had expected durable goods orders to rise 1.4% from a 0.5% increase in the previous month. With the exception of a sharp drop in orders for transport equipment, orders for durable goods did not change in November after rising 0.3% in October.

In a separate report, the US Department of Commerce said sales of new single-family homes rose 1.3% in November from October, to a seasonally adjusted annual level of 719,000 units. Economists forecast sales growth to 735,000 units. Meanwhile, sales in October were revised to 710,000 units from the originally announced 733,000 units. According to the report, the November growth in sales of new homes was driven by 52.4 percent growth in the Northeast and 7.5 percent growth in the West, which recorded the highest level of sales in two years. On an annualized basis, new home sales in November rose 16.9%.

Most of the DOW components completed trading in positive territory (18 of 30). The biggest gainers were The Boeing Co. (BA; + 3.00%). The outsider turned out to be the shares of The Walt Disney Company (DIS; -1.55%).

Most S&P sectors recorded an increase. The raw materials sector grew the most (+ 1.0%). The largest decline was shown by the utilities sector (-0.7%).

At the time of closing:

Dow 28,551.70 +96.61 + 0.34%

S&P 500 3,224.02 +2.80 + 0.09%

Nasdaq 100 8,945.65 +20.69 + 0.23%

Analyst at Wells Fargo, note that reflecting a slump in defense and civilian aircraft, durable goods orders unexpectedly dropped in November. They add that core orders held up better, keeping hopes alive that manufacturing activity may still be stabilizing.

• "Missing expectations for a solid gain, durable goods orders fell 2.0% month-over-month in November, largely on the volatile transportation component. Defense aircraft plunged 72.7% on the month, while civilian aircraft slipped 1.8%, despite Boeing reporting increased order activity since October.
• While core capital goods orders edged up 0.1% following the second-largest monthly gain this year in October, the trend in orders growth remains lackluster.
• Sluggish business sentiment, alongside cooling profit growth and lingering trade policy uncertainty, are likely to keep business capex limited."

Analyst at National Bank of Canada (NFB) Krishen Rangasamy notes that Canada's economy suffered the first output contraction in eight months in October, with the service sector offsetting goods sector softness.

• "Canada's real GDP fell 0.1% in October, taking the three-month change in output to just 0.3% annualized.
• On a year-on-year basis, Canada's GDP was up 1.2% in October, with gains in services (+2.0%) more than offsetting declines in the goods sector (-1.1%).
• October's GDP decline disappointed consensus which had been expecting no change in output. That said, the report isn't as bad as suggested by the overall drop in output. Note that the majority i.e. 13 of the 20 broad industries registered output gains during the month. The resilience of the services sector, with an eighth consecutive increase in output, is reassuring because it's a reliable source of support helping the economy offset a struggling goods sector amid external shocks ─ the weak global economy and GM strike stateside.
• We expect Q4 Canadian GDP growth to decelerate to around 1% annualized. Even then, that won't prevent Canada from achieving a near-potential annual GDP growth rate of roughly 1.7% in 2019, i.e. two ticks higher than what the Bank of Canada had estimated in its last Monetary Policy Report."

The U.S. Commerce Department announced on Monday that the sales of new single-family homes rose 1.3 percent m-o-m to a seasonally adjusted annual rate of 719, 000 units in November.

Economists had forecast the sales pace of 735,000 last month.

October's sales pace was revised down to 710,000 units from the originally reported 733,000 units.

According to the report, the November advance in new home sales was led by a 52.4 percent m-o-m surge in the Northeast and a 7.5 percent m-o-m gain in the West, which recorded its highest sales level in two years.

In y-o-y terms, new home sales recorded a 16.9 percent surge in November.

Analysts at the Royal Bank of Canada (RBC) suggest that, looking further into January, the BoC's next Business Outlook survey will be another important input into Governing Council's early-2020 deliberations.

• "Any increase in business confidence amid a less uncertain trade backdrop (greater likelihood of USMCA ratification and a "phase 1" trade deal between the US and China) would support the BoC's view that slower growth in H2/19 will prove transitory.
• The balance of these indicators-GDP, employment and business sentiment-will be key to whether the BoC maintains a relatively neutral tone (as in December) or sounds more dovish (as in October) come January."

U.S. stock-index futures rose slightly on Monday after China announced it would cut import tariffs on a wide range of goods and U.S. President Donald Trump said that Washinghton and Beijing would "very shortly" sign their initial trade pact.

Global Stocks:

(company / ticker / price / change ($/%) / volume)

Apple (AAPL) target raised to $350 from $325 at Wedbush

NIKE (NKE) target raised to $117 from $114 at Pivotal Research Group

3M (MMM) upgraded to Neutral from Underweight at JP Morgan; target raised to $150

The U.S. Commerce Department reported on Monday that the durable goods orders fell 2.0 percent m-o-m in November, following a revised 0.2 percent m-o-m increase in October (originally a 0.6 percent m-o-m advance). That was the largest monthly drop since May.

Economists had forecast a 1.4 percent m-o-m increase.

According to the report, orders for durable goods excluding transportation were flat m-o-m, following a revised 0.3 percent m-o-m increase in October (originally a 0.6 percent m-o-m gain) and missing market expectations of 0.2 percent m-o-m rise.

Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, edged up 0.1 percent m-o-m in November after an unrevised 1.2 percent surge m-o-m in October. Economists had called for a 0.2 percent gain in core capital goods orders in November.

Shipments of these core capital goods decreased 0.3 percent m-o-m in November after a 0.7 percent m-o-m rise in the prior month (revised from a previously reported +0.8 percent m-o-m).

Statistics Canada announced on Monday that the country's gross domestic product (GDP) edged down 0.1 percent m-o-m in October, following a 0.1 percent advance in September. That marked the first decline in eight months.

That was below economists' forecast for a 0.1 percent m-o-m growth.

According to the report, the manufacturing sector contracted 1.4 percent m-o-m in October due to broad-based declines in both durable (-2.3 percent m-o-m) and non-durable (-0.3 percent m-o-m) manufacturing. Retail trade dropped 1.1 percent m-o-m in October, recording its largest decline since March 2016, while wholesale trade fell 1.0 percent m-o-m, continuing its sequence of increases alternating with declines since July. Meanwhile, transportation and warehousing rose 0.6 percent m-o-m in October, while the mining, quarrying and oil and gas extraction sector edged up 0.1 percent m-o-m. The construction sector was flat m-o-min October as advances in non-residential construction (+0.5 percent m-o-m) and engineering and other construction activities (+0.2 percent m-o-m) were offset by losses in residential construction (-0.2 percent m-o-m) and repair construction (-0.3 percent m-o-m).

In y-o-y terms, the Canadian GDP rose 1.2 percent in October.

Analysts at Rabobank note that CFTC's Commitment of Traders Report revealed the USD net longs halved last week, hitting their lowest levels since mid-June.

• "Optimism regarding a phase 1 trade deal between the US and China boosted risk appetite and drew attention back to high-risk assets. That said, better than expected US economic data lent support to the USD towards the end of last week.
• Net EUR short positions have edged lower for two consecutive weeks, though strong direction remains absent.
• Net short GBP positions have dropped to their lowest level since May on hope that the new majority UK government will result in reduced political uncertainty.
• JPY net positions have held in negative ground for ten consecutive week.
• CHF net shorts have fallen back, but are likely to remain in negative territory assuming risk appetite holds up in the coming weeks.
• CAD net long positions have dropped to their lowest levels since October.
• AUD net shorts pushed higher last week. News of a China/US phase 1 trade deal is supportive but signs of slowing domestic growth could mean that QE comes into view in 2020."

Analysts at TD Securities note that China has announced a cut in import tariffs on 859 items from Jan 1 2020, but is not related to the US-China trade talks or Phase 1 trade deal.

“According to China's State Council, New Zealand, Peru, Costa Rica, Switzerland, Iceland , Singapore, Australia, South Korea, Chile, Georgia, and Pakistan will benefit from tariff reductions.

From July 1 2020 tariffs on goods from Switzerland and Asia-Pac will be further reduced. These tariffs reductions are being undertaken to meet domestic consumption needs eg in Pork, with the impact of African Swine Disease severely impacting domestic supply.”

Analysts at the Royal Bank of Canada (RBC) suggest that as important as October's GDP reading is for the Canadian economy, there's even more riding on December's jobs numbers following a November labour force report that was the worst in recent memory.

• "Recall that the Canadian economy shed 71,000 jobs in the month and the unemployment rate rose 0.4 percentage points (the largest increase in a decade). While it's easy to discount a sizeable, one-month drop in the job count following a period of solid gains (employment growth still averaging a robust 26,000 per month in 2019), a jump in the usually more stable unemployment rate was an inauspicious surprise.
• For December we expect a modest increase in employment and a tick lower in the unemployment rate. That would calm nerves about the state of Canada's labour market heading into 2020. Further deterioration, though, would generate concerns that the economy's shift to sub-trend growth is throwing Canada's strong labour market into reverse."

Analysts at TD Securities are expecting Canada's GDP data release to reveal a 0.1% decline owing to a contraction in the goods-producing sector and a muted increase in services (market: 0.0%).

• "Softer retail and wholesale trade present a key headwind to the latter, although labour market inputs suggest that we should see a pickup in the sector. A 0.1% decline would leave Q4 tracking slightly below BoC estimates from October, although concerns over financial vulnerabilities should keep the Bank on the sidelines for the time-being."

• That includes broad-based and "targeted" cuts in the reserve requirement ratio (RRR), relending and rediscounting
  
  

Analysts at TD Securities are expecting the U.S. durable goods to retreat in November at -1.2% MoM.

• "A rebound in auto orders following the end of the GM strike was probably more than offset by a plunge in the especially volatile aircraft component. We expect little change in both ex-transportation and core capex orders. Surveys have generally been signaling stalling rather than dramatic weakening in underlying trends."

U.S. stocks face a greater-than-usual risk of a sell-off next year, with investors overconfident in an economic resurgence, according to Vanguard Group Inc.'s investment-strategy chief.

"Financial markets run the risk of getting ahead of themselves," Joseph Davis, who also serves as Vanguard's chief economist, said in an interview Friday. He sees 50% odds on a correction in 2020, against what he terms a more typical figure of about 30%.

A correction is often defined as a 10% drop, and the S&P 500 Index hasn't seen one since December 2018, when it came a hair's breadth from entering a bear market -- that is, recording a decline of 20% from the peak.

While this year investors were too pessimistic about recession odds, next year they'll be too optimistic on reflation, Davis said. He also sees a pick-up in U.S. equity volatility from "unsustainably low" levels

"Across the board, expected returns for most strategies are below trailing three-year returns," said Davis. The investment chief estimates that risk assets are pricing in close to 3% U.S. economic growth, an outcome he sees as unlikely.

Analysts at National Bank Financial note that in Canada, the consumer price index was down 0.1% (not seasonally adjusted) in November but a positive base effect meant that the year-on-year inflation rate still rose three ticks to 2.2%.

"The Bank of Canada's three core inflation measures year on year were as follows: 1.9% for CPI-common (unchanged from the prior month), 2.2% for CPI-trim (up one tick) and 2.4% for CPI-median (up one tick). Hence, the average of the three measures rose one tick to 2.2%, its highest level in a decade. The combination of tight labour markets and fading global uncertainties should keep core inflation above the BoC's 2% target for the foreseeable future. In light of this, we continue to believe rate cuts an unlikely scenario."

Danske Bank analysts point out that the UK consumer and business confidence rose marginally in December but both remain subdued.

"Both surveys were conducted before the election so based on these numbers we cannot say anything about consumers/business sentiment after the clear victory by Boris Johnson. Looking ahead, continued weakness or slightly improving sentiment data will be highly important for whether and/or when Bank of England will cut interest rates, though we expect such to happen in Q1."

Chinese President Xi Jinping on Monday expressed concerns over rising tension between North Korea and the United States, calling for them to maintain the momentum for dialogue, South Korea's presidential office said.

"There are many people concerned about the tense situation on the Korean peninsula," Xi told South Korean President Moon Jae-in during a summit in Beijing, according to Moon's spokeswoman Ko Min-jung.

"China and South Korea should gather strength to help North Korea and the United States sustain the momentum for dialogue."

According to analysts at the Royal Bank of Canada, this week's October GDP report will provide further evidence that Canada's economy geared down in the second half of 2019.

"We are pencilling in a 0.1% monthly drop following already-subdued 0.1% gains in each of the last three months. Further softening in the manufacturing sector, and pullbacks in the wholesale and retail components are expected to have weighed on growth in October. A slow start to Q4 would lend some downside risk to both our own quarterly GDP forecast (1.4%) and the Bank of Canada's (1.3%). Falling short of the already low bar set by the BoC would represent an unwelcome end to a year in which Canada's economy has displayed a good degree of resilience against external headwinds."

Morgan Stanley has flagged 29 Chinese stocks that are most likely to benefit from the completion of a phase one deal between the U.S. and China.

Nearly half of them are from the information technology sector, which has been hit by the trade war as those companies have been on tariff lists. Eight are from the consumer sector.

"These two sectors saw the biggest scale of valuation re-rating based on their previous reaction to de-escalation events," Morgan Stanley said in a report last week.

All 29 have sizable exposure to U.S. revenues - more than 25%, the investment bank said.

"We believe IT/Internet-related and Transportation stocks will benefit the most from any de-escalation of trade tensions - IT and Internet due to their exposure to tariff impacts and technology bans, while Transportation stocks, especially Airlines, should benefit from an improved global trade outlook and strengthened CNY/USD," the bank wrote.

The Bank of Japan will make changes to its closely watched "tankan" quarterly survey starting from the next time it is due in March next year, the central bank said on Monday.

The move is aimed at providing markets more information on how globalisation is affecting companies' behaviour.

From March 2020, the exchange rates component of the survey will be extended to cover all industries excluding financial institutions and holding companies, and cover euro-yen rates as well as dollar-yen rates.

The BOJ previously conducted the exchange rates survey only among large manufacturers and it was limited to dollar-yen rates. Starting from March next year, the central bank will also release a summary of its survey on companies' inflation expectations on the day the main survey is put out.

Another change the BOJ is making is that it will include a component on firms' overseas business activity, beginning in June 2020.

Danske Bank analysts point out that EUR/USD took a step lower on Friday from having hovered above 1.11 to now being slightly below.

"Although we recently took our 12M forecast to 1.15, we still believe the lack of rate support for EUR caps upside in the pair, i.e. the ECB is essentially a constant in FX markets for now. Improving global growth expectations, rising commodity prices, inflation expectations and broadly rising equity prices continue to have little to no correlation to moves in the EUR but have been quite supportive for SEK and NOK, on the other hand. We thus look for EUR/USD to trade close to 1.11 on 1-3M."

Canada's industry-level GDP is forecast to decline by 0.1% MoM in October owing to a contraction in the goods-producing sector and a large drag from retail and wholesale trade, according to analysts at TD Securities.

"Preliminary crude output edged lower which will offset the rebound on the East Coast after a series of oil spills weighed on offshore production through Q3. Elsewhere, the UAW strike will weigh on motor vehicle production and contribution to a pullback in manufacturing activity during the month. Weaker utilities output will provide another headwind, owing to unseasonably warm weather during the month. Services should fare slightly better, although a sharp pullback in both retail and wholesale trade volumes will weigh. Professional services, a significant driver of recent strength in the services sector, saw a large (+2.1%) increase in hours worked for October which should provide a tailwind. A 0.1% decline for industry-level GDP is hardly a desirable start to Q4 but should leave quarterly growth tracking near 1%, slightly below the latest BoC projections."

Interest rates in the euro zone could remain historically low for years, but the European Central Bank's (ECB) ultra-loose monetary policy risks becoming counterproductive, ECB governing council member Klaas Knot said.

"I do not have a crystal ball, but I cannot rule out that the current low interest rate environment could last another five years", Knot told Dutch newspaper De Volkskrant.

"This worries me, because temporarily low interest rates are something quite different from persistently low interest rates."

The Dutch central bank president said the current low rates lead to excessive risk taking among investors, while younger generations on the other hand might feel forced to keep increasing their savings.

"From a macro-economic perspective that would be undesirable," Knot said. "And it is also an example of how our low interest rate policy may eventually shoot itself in the foot. If people start saving more in response to the low interest rates, this will add further downward pressure on inflation."

"The balance between positive and negative effects of the low interest rates is shifting in the wrong direction", he told the paper.

China unveiled its latest slate of measures designed to bolster private-sector businesses as policy makers double down on efforts to support what is by far the country's largest source of jobs.

The steps announced Sunday by the State Council, China's cabinet, aim to help private firms gain better market access and equal regulatory treatment as their state-owned peers. Among actions to be taken are the further opening of key industries to non-state investors, including energy and finance, and also facilitating equity and bond sales by private-sector businesses.

Pressure on policy makers to act has mounted as American tariffs sap demand for Chinese exports and an ongoing campaign to rein in the country's shadow banking industry tightens the availability of financing. The private sector, which accounts for 9 out of every 10 new jobs created in China, has been hardiest hit thanks to what critics say is a regulatory regime that tilts business conditions in favor of state-owned companies.

It's hard to understate how important private firms have become to China's economy. They account for 50% of the country's tax revenue, 60% of gross domestic product and 80% of urban employment, according to government statistics.

According to Danske Bank analysts, with the approaching festive season and Christmas calm settling in the markets, the data flow in Europe and the US will slow this week.

"In the UK, PM Boris Johnson continues to aim to get his Brexit bill through Parliament ahead of the 31 January deadline. In the US, core capital goods orders and new home sales for November are released. The former showed a surprising rise in October and the November data will shed light on how robust this trend is and whether the worst of the capital spending cutbacks are behind for the US economy. We remain sceptic about a marked rebound in capex investment, despite the recent accord around a 'phase one' deal."

According to the report from Federal Statistical Office (Destatis), the index of import prices decreased by 2.1% in November 2019 compared to the corresponding month of the preceding year. In October 2019 and in September 2019 the annual rates of change had been -3.5% and -2.5%, respectively. From October 2019 to November 2019 the index rose by 0.5%.

The index of import prices, excluding crude oil and mineral oil products, decreased in November 2019 by 2.1% compared to November 2018. In comparison with October 2019 it rose by 0.3%.

The index of export prices fell by 0.1% in November 2019 compared to the corresponding month of the preceding year. In October 2019 the annual rate of change had been -0.2%, in September 2019 the index had not changed compared to September 2018. From October 2019 to November 2019 the index remained unchanged.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1208 (5367)

$1.1173 (2564)

$1.1152 (3731)

Price at time of writing this review: $1.1083

Support levels (open interest**, contracts):

$1.1046 (5487)

$1.0998 (3066)

$1.0949 (2666)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date January, 3 is 54783 contracts (according to data from December, 20) with the maximum number of contracts with strike price $1,1050 (5487);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3215 (3119)

$1.3176 (829)

$1.3142 (1446)

Price at time of writing this review: $1.3016

Support levels (open interest**, contracts):

$1.2957 (1626)

$1.2921 (862)

$1.2881 (1564)

Comments:

- Overall open interest on the CALL options with the expiration date January, 3 is 24339 contracts, with the maximum number of contracts with strike price $1,3500 (3275);

- Overall open interest on the PUT options with the expiration date January, 3 is 27231 contracts, with the maximum number of contracts with strike price $1,2800 (2328);

- The ratio of PUT/CALL was 1.12 versus 1.32 from the previous trading day according to data from December, 20

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.