- Equities are weaker on US tax reform jitters
- Tax reform unlikely to be finished this side of Christmas
- Central bankers are nervous about lagging inflation
- Crude oil is drifting sideways though pipeline outage supports
- Copper’s recovery from $2.95/lb supported by Chilean wage talks
- Gold holding onto dovish FOMC gains on tax worries
By Clare MacCarthy
It's shaping up to be a quiet end to the week with equity markets increasingly driven by sentiment, oil stuck in a rut and zinc and aluminium flying high on China's great switch from manufacturing into services.
"Things are really developing here on the sentiment side and equities are weaker on US tax reform jitters," says Peter Garnry, Saxo's head of equity strategy. The consensus that the reforms won't actually fall into place this side of Christmas is now building and this, along with widespread nervousness among central bankers over inflation, means that the seasonal cheer that's often around at this time of year is nowhere to be seen.
This weaker sentiment is particularly apparent in Chinese equities, Garnry says, pointing to the fact that the Shanghai Composite index has been on the downwards trail since its peak in mid-November (chart above).
Looking ahead to the early part of next year, Garnry predicts that several of the "softer" types of data – sentiment-tracking indices and the like – will probably peak in February or March, setting the stage for a 5% to 10% equity correction. But before we get to that stage we might be in for what Garnry calls a "spectacular record": If global equity markets finish December in positive territory then this year will be the first since 1988 to deliver gains in every single calendar month.
Meanwhile, over in the world of commodities, oil is well and truly stuck in a rut, reports Ole Hansen, Saxo's head of commodity strategy. "We're seeing the oil markets drifting sideways with some profit taking capping the upside and the Forties pipeline outage providing support on the downside," he says.
In metals, copper’s recovery from $2.95/lb has been supported by upcoming 2018 wage talks in Chile involving 32 unions and 20% of global production. But the real high flyers, Hansen says, are aluminum and zinc which are benefiting from China's economic switch from the old (manufacturing) to the new (services) economy, a move that will increase reliance on these metals which are employed in high-end applications, including electric vehicles. Demand for zinc in particular has sent its market into deficit with LME stockpiles hitting a 2008 low.
China's new economic path is sparking demand for aluminium and zinc.
Pic: J. Lekavicius / Shutterstock.com