In something of contrast to the previous year’s final month, markets pushed higher with US bourses hitting a series of new highs as the final full week of trading saw domestic markets also join in the much fabled ‘Santa rally’.
As the week closed in on the shortest day of the year, the FTSE’s rally grew longer and longer, powering higher on Monday in particular as a combination of a potentially speedy Brexit resolution and a “nearly done” preliminary US-China trade agreement supported risk assets. With the Tories taking steps to reassure markets that they will deliver a swift exit from the EU, more domestically exposed stocks, especially banks, rejoiced, with Lloyds and Royal Bank of Scotland jumping 3.7% and 5.5% respectively. The real winner of the week however was Mike Ashley, as his business, Sports Direct, climbed 31%, its biggest ever 1-day gain, after the retailer forecast core earnings growth of as much as 15%. All in all, the blue-chip index surged 2.25% during the start of the week whilst the mid cap index hit all-time highs.
At a time when Father Christmas has his work cut out, delivering presents to children around the world in one evening, perhaps analysts feel his exertions could eat into Fedex; the delivery company’s market share tumbling 10% during the week. The parcel company predicted a failed delivery on its fiscal 2020 profit forecast. Fedex’s loss was felt throughout the logistics sector with United Parcel Services (UPS) seeing their shares decline sharply. The tech heavy NASDAQ however roared on, with a fifth record closing high wrapped up in a bow.
By the end of the week markets had extended their year-end rally, while bond yields pushed higher in Europe after Sweden halted five years of negative interest rates, signalling the end of the sub-zero era.
Whilst frankincense and myrrh markets were little changed, it was gold that moved towards the end of the week as investors digested news that US GDP came in on consensus, measuring 2.1%. GDP data is the broadest measurement of economic activity and is often viewed as the primary gauge of an economy’s health.
With many market participants taking time off to enjoy the Christmas break and limited key economic data over the week ahead, one could be forgiven for expecting relatively benign market conditions. However, we only have to cast our minds back to the Christmas week last year to be reminded of the potential for significant volatility. The S&P 500 had its worst Christmas Eve ever in 2018, falling 2.7%, however, it then subsequently rebounded on Boxing Day, rising a staggering 4.9%. Thin trading volumes and fund managers adjusting positions before year-end often contribute to the large moves.
On the economic data front we are treated to a plethora of key data from the US during the week. On Christmas Eve US Durable Goods Orders are published, a key economic indicator showing new orders placed with domestic manufacturers for near term delivery. Elsewhere in the US, mortgage applications and initial jobless claims figures are released on Boxing Day. US mortgage rates are sensitive to movements in the treasury yields and with the recent move up in yields, and therefore mortgage rates, there is the potential for mortgage applications to undershoot expectations. Initial jobless claims show the number of people claiming unemployed state benefits and therefore is a useful measure of the underlying health of the labour market, alongside the Non-Farm Payroll data, which are released on the first Friday of each new month. With unemployment at a multi-decade low of 3.5% and November’s job figure pointing to a 10-month high in terms of new jobs being added to the economy, investors will be hoping Thursday’s jobless claims support the recent positive trends in the labour market.
In what is a quiet week ahead we will also receive data from the world’s third largest economy, Japan. On Monday the country publishes the minutes from the recent policy meeting which will contain in-depth insights into the economic conditions that influenced the decision on where to set interest rates. Industrial production is published on Thursday and provides a good insight into the current conditions of the economy. Recent industrial data has been very weak, in part driven by adverse weather and a tax hike.