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Record-Highs in the Stock Market Global Stock Market Record Highs Amid geopolitical tensions, mixed earnings report and less-dovish central banks, this week, we still saw some more record highs in the stock market. Nasdaq Composite closed at a record high at 8,321.50 on Wednesday as technology stocks rallied on strong earnings, trade optimism, and a US budget deal at the beginning of the week. S&P 500 also traded at an all-time high at 3,019.56 on Wednesday, which brings its annual percentage change to 19.82%.

However, the momentum slowed down towards the end of the week with mixed earnings and less-dovish central banks. S&P500 widely regarded as the best single gauge of large-cap US stocks dropped by 0.50% while Nasdaq Composite finished 1% lower on Thursday. US500 (S&P500) – 15 Mins Chart Source: GO MT4 In the Australian share market, the All Ordinaries index, the oldest share index, which is made up of 500 largest companies listed on the ASX, reached an all-time at 6,901.90 on Thursday.

Source: Bloomberg Terminal The S&P/ASX200 was just 10 points away from its best close ever. Unlike the ECB, the RBA Governor Lowe was more dovish during his speech stating that “if demand is not sufficient, the Board is prepared to provide additional support by easing monetary policy further.” Major Earnings Reports As the week progressed, earnings went from being strong to mixed. Attention was mostly on the major companies from the FAANG Group.

Amazon: Amazon reported its quarterly updates after the closing bell, and shares of Amazon slipped by 2.5% in the after-hours trading. The company saw earnings of $2.6bn, and revenue was $63.4bn, which is up from the $52.9 billion a year ago. However, the figures came below estimates, and it is the first time Amazon reported income below analysts’ consensus.

The main highlight for Amazon was Prime Day, which was the largest shopping event in Amazon history. The weaker-than-expected profit is mostly due to the investment in expediting deliveries to Prime customers, which the company previously announced. The actual cost of speeding shipping was higher than anticipated, and it will be one of the key metrics investors will be monitoring for the next quarter.

Third Quarter 2019 Guidance Net sales are expected to be between $66.0 billion and $70.0 billion, or to grow between 17% and 24% compared with third-quarter 2018. This guidance anticipates an unfavourable impact of approximately 30 basis points from foreign exchange rates. Operating income is expected to be between $2.1 billion and $3.1 billion, compared with $3.7 billion in third quarter2018.

This guidance assumes, among other things, that no additional business acquisitions, investments, restructurings, or legal settlements are concluded. Source: Bloomberg Terminal Google: Google’s parent company, Alphabet, reported higher than expected revenue at a time where the tech giant is facing increasing scrutiny from the US regulators. The second-quarter revenue is $38.9 bn, which is a rise of 19% compared to 2018 Q2.

Its share price rose more than 7% in the after-hours trading. Source: Bloomberg Terminal Facebook: Facebook’s earnings beat forecasts despite data scandal. The 2019 figures include an additional $2.0 billion legal expense related to the U.S Federal Trade Commission (FTC) settlement. "We had a strong quarter and our business and community continue to grow," said Mark Zuckerberg, Facebook founder and CEO. "We are investing in building stronger privacy protections for everyone and on delivering new experiences for the people who use our services." We also note that Facebook struck a $5 billion settlement with the FTC following the 2018 Cambridge Analytica scandal.

Shares were on the downside despite upbeat results as the CFO expects “more pronounced deceleration in the fourth quarter and into 2020, partially driven by ad-targeting related headwinds and uncertainties”. Source: Bloomberg Terminal

The Main Headlines of the RBA August Statement By Philip Lowe, Governor: Monetary Policy Decision The Board decided to leave the cash rate unchanged at 1.00 per cent. The outlook for the global economy remains reasonable. The persistent downside risks to the global economy combined with subdued inflation have led a number of central banks to reduce interest rates this year and further monetary easing is widely expected.

The Australian dollar is at its lowest level of recent times. Inflation to increase gradually, but it is likely to take longer than earlier expected for inflation to return to 2 per cent. Wages growth remains subdued and there is little upward pressure at present, with strong labour demand being met by more supply.

Conditions in most housing markets remain soft, although there are some signs of a turnaround, especially in Sydney and Melbourne. It is reasonable to expect that an extended period of low-interest rates will be required in Australia to make progress. The Board will continue to monitor developments in the labour market closely and ease monetary policy further if needed to support sustainable growth in the economy and the achievement of the inflation target over time

One Country, Two Systems The Hong Kong protests have reached a point where it is threatening the “one country, two systems” that exists between the special international financial hub and the mainland. It started with demonstrations against the extradition bill which later turned into a movement against the Hong Kong’s government. Millions marched through the streets, groups stormed through government buildings and protesters also brought the city’s international airport to a standstill for two days.

Months of unrest is now taking a toll on the city’s economy. Hong Kong is one of the world’s busiest business locations, and by crippling the airport and the city, companies operating in the financial hub are experiencing some serious disruptions. Does China need Hong Kong to stay as it is?

The autonomy given to Hong Kong back in 1997 when China regained control of the city was mostly respected because China needed the city to remain as it is: “The financial centre of China” The three months of protests forced traders to reassess China’s stance and dependency of Hong-Kong. Back in 1997, China was not part of the World Trade Organisation (WTO). After a lengthy process of negotiations and significant changes to the Chinese economy, China became a member of the WTO.

It means that China no longer has to rely on Hong Kong to get access to the global trade market. In 1997, the special status given to Hong Kong benefitted the mainland economy. However, when we look at the GDP figures over the years, we can see that Hong Kong’s economy relative to China has fallen from 18% to less than 3%.

Hong Kong GDP (US$) China GDP (US$) In 1997 177 Billion 962 Billion In 2018 362 Billion 13 Trillion Source: World Bank China has undergone enormous economic growth over the years and also launched a series of policies to expand its expansion. In terms of growth engines, Hong Kong has been lagging. However, GDP figures alone may not be a good indicator to assess the appeal of Hong Kong relative to China.

Hong Kong has retained the Number 1 title as the world’s freest economy for years and has an economic freedom score of 90.2. When you look at the GDP per capita, Hong Kong outshined China. There is a positive correlation with economic freedom and average GDP per capita.

Countries with more economic freedom tend to have higher GDP per capita income. Source: World Bank Rather than monitoring the economic size, it is more meaningful to use the GDP per capita as an indicator of economic performance to make cross-country comparisons of average living standards and economic wellbeing. GDP per capita is a straightforward division of the total GDP by the population.

The gap in the social, political, cultural and educational development between the city and the mainland is also probably what makes Hong Kong stands out in Asia. Impact of the Protests As Hong Kong battled one of its worst political crises in decades coupled with an escalation of a trade war between the US and China, fears of an immediate recession in Hong Kong are crippling the markets. On Wednesday, it was reported that the private sector activity plunged to a decade-low in August.

The Manufacturing PMI has recorded a decline in the last 17 months. Stocks Hong Kong stocks experienced a sharp pullback over the months. The sell-off sparked by trade tensions were exuberated in Hong Kong due to the protests.

Retail, Property and Casino stocks were among the worst performers after the rallies caused major disruptions to the international airport and transport networks. After weeks of unrest, Carrie Lam offers to withdraw the controversial extradition bill in an attempt to bring some calm. Hong Kong stocks bolstered higher and the MSCI gained by over three standard deviations on Wednesday.

Source: Bloomberg Terminal The Property Index led the gains with nearly 7.5% rise following the announcement on the offer to withdraw of the extradition bill. Source: Bloomberg Terminal Hong Kong Dollar The Hong Kong Dollar has been pegged against the US dollar for decades. The peg has been pretty resilient over the years and has survived a few financial crises.

However, the currency is now faced with: A slowing global economy; A trade war between the US and China; and A domestic social unrest. The Hong Kong Dollar is pegged in a tight range of around HK$7.75 – 7.85. The HKD peg helps in preserving confidence and reducing foreign exchange risk.

Investors are comfortable with the peg as it is much more robust in withstanding currency attacks. Source: Bloomberg Terminal However, amid the global headwinds, the HKD appear to be weakening this year but it is unlikely that the currency will trade significantly outside the currency’s range. The central bank will buy local dollars if it gets too weak and sells to curb excessive strength.

Source: Bloomberg Terminal Overall, it is a solid currency peg which is shielded from the current turmoil. China has refrained from intervening despite threatening to do so as the city remains an important gateway and stable financial centre for China. Beijing considered Shenzhen as the “next” Hong Kong given its strategic location and proximity to Hong Kong.

However, in the near future, no other Chinese city appear to be able to immediately step in the role of Hong Kong’s city.

The oil industry has remained pressurized by a supply glut and the ongoing uncertainty on the demand outlook with respect to the structural changes in the energy market and the pandemic. The recent vaccine updates and hopes that the pandemic may soon be under control, is providing support to a fundamentally battered energy market. As the year comes to an end, oil traders were eyeing OPEC and its allies’ commitments to production cuts for direction.

The 12 th OPEC and non-OPEC Ministerial Meeting was initially delayed as OPEC+ needed more time to reach a deal which kept the oil traders on edge. After tough negotiations, the meeting concluded on a positive note on Thursday: The Meeting reaffirmed the continued commitment of the participating countries to a stable market. The Meeting emphasized that it was vital that participants, and all major producers, remain fully committed to efforts aimed at balancing and stabilizing the market.

It noted that renewed lockdowns, due to more stringent COVID-19 containment measures, continue to impact the global economy and oil demand recovery, with prevailing uncertainties over the winter months. In light of the current oil market fundamentals and the outlook for 2021, the Meeting agreed to reconfirm the existing commitment from 12 April 2020, then amended in June and September 2020, to gradually return 2 mb/d, given consideration to market conditions. Beginning in January 2021, participating countries decided to voluntary adjust production by 0.5 mb/d from 7.7 mb/d to 7.2 mb/d.

OPEC and its allies expect stockpiles to fall in the first quarter by delaying the return on supply compared to the original plan. Crude oil prices firmed higher buoyed by the compromise deal despite this week’s bearish oil reports: The United States EIA Crude Oil Stocks Change registered at -0.679M above expectations (-2.358M) on November 27. API reported a much larger-than-expected inventory level of 4.146M.

As of writing, WTI Crude oil (Nymex) and Brent Crude (ICE) were trading at around $46.40 and $49.67 respectively and the US oil is poised to post its fifth weekly gain. The vaccine updates and OPEC deal have helped the crude oil prices to pare majority of the losses seen during COVID March lows. Source: GO MT4

On 8 March 2020, Saudi Arabia initiated an oil price war with Russia, triggering a rout in the oil market at a time where the world is facing a pandemic and many countries forced to shut down their activities and borders. Crude oil prices have lost nearly half of their prices, battled by a simultaneous demand and supply shock. Last Thursday, President Trump tweeted about expectations of substantial production cuts, which has lifted hopes that OPEC and its allies will intervene to bring some stability in the oil and gas industry.

The Blame Game Delayed the OPEC meeting President Trump’s actions resulted in an emergency OPEC meeting which was initially scheduled to take place on Monday. Over the weekend, the rift seemed to have widened as Russia dragged Saudi Arabia into the hostilities against the US Shale oil industry. The blame game has caused the meeting to be postponed which is “likely” going to take place on Thursday.

Multilateral Support Needed Unprecedented measures are needed to tackle an unprecedented crisis. Are we going to see an alliance of oil producers other than OPEC+? A supply glut and weak demand have sent prices into a freefall, which is prompting growing calls of a multilateral commitment of oil producers to regularise the oil market.

Among all the noises currently in the oil industry, traders need to pay particular attention to key factors: Russia and Saudi Arabia Market participants will need to monitor whether Russia and Saudi Arabia are willing to look passed the blame game and go back to the negotiable table. The first calming factor will be that both oil producers are able to resolve their differences and start a dialogue to cut oil production. The US to Join Efforts It is clear that for the interest of all producers, the efforts should not only come from OPEC+ members.

Ever since the US President tweeted about the hopes of a truce between Saudi Arabia and Russia, the US has been under increased pressure to join global forces in cutting production amid crashing oil prices. EIA Reports The US Energy Information Administration slashed its expectations for US crude oil production by more than 1 million barrels - a day ahead of the much-awaited meeting. Despite the projected cuts by the EIA, the US is still expected to formally commit to production cuts.

It appears to be the decisive factor that will restore peace in the industry. G20 Meeting It is reported that the G20 group of leading world economies will meet on Friday to host an emergency meeting with energy ministers. The aim of the meeting will focus on bringing nations together in an effort to stablilise the world energy markets.

Dual Meeting The OPEC meeting followed by the G20 meeting could be a turning point for the oil and gas industry. Global efforts by OPEC+ members along with other key members, including the US, Canada and Brazil, among others, are key in bringing back confidence at a time where the oil market is facing the brunt of a pandemic. Saudi Arabia has delayed setting May delivery prices of oil in anticipation that the meeting will end in a net positive.

As of writing, we note that President Trump stated that he was not asked to participate in cutting production but “may” consider such a scenario if it would help to resolve the international disputes. As the week comes to an end, attention will remain fixated on the upcoming meetings and any developments that will help investors to gauge the thinking of oil producers.

An election-driven month With just a few days to month's end, the dynamics driving markets have changed compared to a few weeks ago. Risk sentiment was sliding under the influence of politics, mostly by the uncertainty around the US Presidential Election. More recently investors have breathed a sigh of relief on a series of positive vaccine updates, despite continued uncertainties.

Global equities The election mayhem and a probable contested election, the gridlock in Congress, another wave of lockdowns, Brexit and vaccines updates were the same predominant themes driving the stock market this month. Pfizer and BioNTech, Moderna and AstraZeneca issued statements of the progress of the vaccines trials boosting global equities: Pfizer and BioNTech They provided two main updates across the month. After announcing a 90% efficacy rate, they conduct the final efficacy analysis in their ongoing Phase 3 study, and their mRNA-based COVID-19 vaccine candidate met all the study’s primary efficacy endpoints.

The analysis of the data indicates a vaccine efficacy rate of 95%. Moderna The Phase 3 study met the statistical criteria with a vaccine efficacy of 94.5%. AstraZeneca The positive high-level results from an interim analysis of clinical trials of AZD1222 in the UK and Brazil showed the vaccine was highly effective in preventing COVID-19, the primary endpoint, and no hospitalisations or severe cases of the disease were reported in participants receiving the vaccine.

There was a total of 131 COVID-19 cases in the interim analysis. After the recent promising vaccine updates, investors shifted from high-flying tech stocks into cyclical stocks on the hopes of a quicker economic reopening than initially expected. Source: Bloomberg Terminal A contested election, stimulus gridlock and more lockdowns The US sharemarket is faced with a Joe Biden Presidency and a Republican Senate and the reassurance that there might not be a major shift in policies given the gridlocked Congress.

However, investors remained cautious and wary given the uncertainties on the stimulus relief package and the ramping efforts of President Trump claiming fraud at the 2020 election. In a pandemic-induced environment where the lack of timely fiscal support from the government is heavily impacting the economy and the level of confidence in the markets, the refusal of President Trump to coordinate transition efforts with President-elect Joe Biden adds another layer of uncertainty for markets. On the virus front, the US states have resumed lockdowns in an attempt to curb the spread of the outbreak following daily records of coronavirus cases and deaths.

Towards the end of the month, positive vaccine and political news have steered the US markets: Vaccinations Pfizer and BioNTech SE submitted a request to the U.S. Food and Drug Administration (FDA) for Emergency Use Authorization (EUA) of their mRNA vaccine candidate, which will potentially enable the use of the vaccine in high-risk populations in the U.S. by the middle to end of December 2020. They also announced their intention to roll submissions across the globe including in Australia, Canada, Europe, Japan and the U.K, and plan to submit applications immediately to other regulatory agencies around the world.

As per the announcement and Dr Moncef Slaoui, Americans could receive a COVID-19 vaccine as soon as the 11th of December. Politics The General Services Administration (GSA) which can ascertain the winner of a Presidential election based on certain criteria and govern under the law for presidential transitions, has recognised Joe Biden as the “apparent winner” and extended around $8 million in transition funding and making other resources available to the Biden transition team. In addition to the transition funding, the state of Michigan officially certifies the election results for Joe Biden, fuelling hopes that there is a less chance of a contested election.

The Dow Jones Industrial Average, the blue-chip index topped 30,000 for the first time. It was another milestone for the US stock market amid the pandemic. Another notable event was the announcements coming from Tesla and Amazon: Tesla: The electric car maker announced it is set to join the S&P500 on December 21.

The Company also received a trading upgrade to a buy-equivalent citing “ the company on the verge of a profound shift ” from Morgan Stanley after its debut declaration. The Company’s share price rallied following the announcement, highlighting the dominance of mega-cap growth stocks on the S&P500 benchmark. Amazon: Amazon launches its online pharmacy - the Amazon Pharmacy earlier this month capturing the pharmacy business.

It is a game-changer for the online retailer giant as it will allow customers to order medication or prescription refills to be delivered to their front door within days. Its emergence in the prescription drug space will definitely have some impact on drugstores. The share price of its rival companies CVS Health Corp, Wallgreens Boots Alliance Inc, Rite Aid and GoodRx took a blow on the launch.

Europe & UK – Lockdowns & Brexit The European markets were also underpinned by more national or localised lockdowns and Brexit negotiations. Even though the European Union appeared more optimistic around the negotiations with the UK, there is still much uncertainty around Brexit. The countries like France and Belgium are urging the EU to also step up preparations of a no-deal Brexit.

While investors welcomed the vaccine updates, the eurozone economy seems to be lagging compared to its peers. The latest PMI figures in the UK, US and Australia also indicated a strong recovery in the manufacturing and services sector while the Eurozone and Germany failed to recover as expected. Like the other markets, encouraging vaccine news was the bullish trigger in the European markets.

ASX - back in black After the release of the Federal Budget, Australian shares started to decouple from US and European stocks as investors endorsed the government blitz which boosted confidence. During the month of November, the Australian share market has rallied significantly on the back of: The easing of lockdown restrictions in the second most populated state and the second’s largest city in the country. The positive vaccine updates coming from Pfizer and BioNTech, Moderna and AstraZeneca.

The confidence in the Australian economy as compared to other major countries. Historically low-interest rates. Even though the RBA slashed interest rates to a historic low, there is a level of reassurance that the lower level of interest rates will stay for a longer period which means that the central bank is not expecting a deterioration in the Australian economy fuelling investors’ confidence.

The Asia-Pacific Free Trade Agreement has provided another level of confidence at a time of global trade uncertainty. It has also elevated expectations that both countries might initiate some sort of dialogue after the Chinese Communist Party has frozen all communications with Australian ministers. Earlier this week, the ASX briefly erased 2020 losses before retreating slightly lower as of writing.

Forex market In the forex market, major currencies were stronger against the US dollar. The greenback struggled against its peers following fresh daily records on the virus front, mixed economic data, a dovish central bank and a stimulus gridlock. Safe-haven currencies like the greenback, Japanese Yen and Swiss franc were among the worst performers as compared to commodity-related currencies and the British Pound.

Source: Bloomberg Terminal The Antipodeans currencies were among the top gainers lifted by the better containment of the virus as compared to other major economies. The additional funding from the central banks, governments, renewed confidence, and economic data have helped the Australian and New Zealand dollar to edge higher. As of writing, the AUDUSD pair is currently trading above the 0.73 level.

Source: GO MT4 The GBPUSD pair reclaimed the 1.33 level following encouraging Brexit headlines and the overall broad optimism in the markets despite the national lockdown. Source: GO MT4 Oil – Broad optimism Crude oil prices have remained pressurised by the uncertainty on the demand outlook and a supply glut. The broad optimism in the markets triggered largely by vaccine updates and hopes that the pandemic may soon be under control, is providing support to a fundamentally battered energy market.

As of writing, WTI Crude oil (Nymex) and Brent Crude (ICE) were trading higher around $45.87 and $48.83. Traders will likely keep monitoring weekly oil reports and OPEC commitments to production cuts for fresh trading impetus. Gold slides Gold plummeted below the psychological mark at $1,900 on the first announcement of Pfizer and BioNTech that its vaccine has a 90% efficacy rate.

For the remaining on the month, the precious metal remained underpinned by vaccine trials news and the US stimulus gridlock. As of writing, the XAUUSD pair has dropped to its lowest point in four months and is currently trading around $1,810. From the health crisis point of view, the vaccine updates are fuelling the hopes of a quicker recovery and providing reassurance to investors.

However, the amount of stimulus injected into the global economy over the last couple of months is evidence that the economic and financial recovery might take some time. Source: GO MT4 Despite the recent sell-off, the precious metal is currently holding up above the $1,800 mark. Any breach below this level may trigger a deeper sell-off.