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U.S. and Toronto stock markets are set for a strong open Monday – with the Dow poised for a triple-digit jump – after hints of some movement on the U.S. and China trade war front after a tough end of year of the markets.

In a tweet which provided relief to financial markets, U.S. President Donald Trump said on Sunday that he had a “long and very good call” with his Chinese counterpart Xi Jinping and that a possible trade deal between the United States and China was progressing well.

Chinese state media were more reserved, saying Xi hoped the negotiating teams could meet each other half way and reach an agreement that was mutually beneficial.

The Wall Street Journal reported the White House was pressing China for more details of on how it might boost U.S. exports and loosen regulations that stifle U.S. firms there.

“Simply looking at the markets would suggest that the global economy is headed into recession,” said Robert Michele, chief investment officer and head of fixed income at J.P. Morgan Asset Management.

“However, while we agree the global economy is in a growth slowdown, we don’t see an impending recession,” he added, in part because the U.S. Federal Reserve could provide a policy cushion.

“Already, commentary out of the Fed suggests that it is nearing the end of a three-year journey to normalize policy,” argued Michele.

Indeed, Fed fund futures have largely priced out any hike for next year and now imply a quarter point cut by mid-2020.

The Treasury market clearly thinks the Fed is done on hikes, with yields on two-year paper having fallen to just 2.52 per cent from a peak of 2.977 per cent in November.

The $15.5-trillion market is heading for its biggest monthly rally in 2-1/2 years, according to an index compiled by Bloomberg and Barclays.

Europe’s STOXX 600 followed Asia’s overnight lead to push 0.3 per cent higher as traders made a lackluster effort to gloss over the worst year for equities since the 2008 financial crisis.

Survey data out of China, however, proved mixed with manufacturing activity contracting for the first time in two years even as the service sector improved.

MSCI’s broadest index of Asia-Pacific shares outside Japan ended up 0.6 per cent, but were still down 16 per cent for the year. Japan’s and China markets were closed for the holiday.

The story was much the same across the globe, with the vast majority of the major stock indices in the red.

London’s FTSE – up in earlier trading – slid 0.05 per cent, and Paris’ CAC climbed 1 per cent on the day but both are down more than 11 per cent in 2018. Germany’s export-heavy DAX has seen more than 18 per cent wiped off its value. It was also closed for the holiday.


Oil prices climbed on the final trading day of the year on Monday, mirroring gains in stock markets, but were on track for the first yearly decline in three years amid lingering concerns of a persistent supply glut.

Brent crude futures rose 74 cents, or 1.4 per cent, to US$53.95 a barrel. Brent declined nearly 20 per cent in 2018 following two years of growth.

U.S. West Texas Intermediate (WTI) crude futures were at US$45.84 a barrel, up 51 cents, or 1.1 per cent, from their last close. WTI is down about 24 per cent this year.

For most of 2018, oil prices were on the rise, driven up by healthy demand and also supply concerns, especially around the impact of renewed U.S. sanctions against major producer Iran, which were introduced in early November.

Brent crude futures, seen as a global benchmark for oil prices, rose by almost a third between January and October, to a high of US$86.74 per barrel.

That was the highest level since late 2014, the start of a deep market slump amid bulging global oversupply, and many leading analysts and traders at the time said they expected crude to hit US$100 per barrel again by the end of 2018.

Instead, Brent prices have wiped out all of 2018’s gains, plunging by almost 40 per cent from the year’s high to around US$53.25 a barrel, in what has been one of the steepest oil market selloffs of the past decades.

The slump came after Washington gave unexpectedly generous sanction waivers to Iran’s biggest oil buyers and as concerns over a global economic slowdown amid Sino-American trade disputes dented the outlook for oil demand.

“It was the bailout of Iran that really pricked the bubble that was the crude oil market,” said Sukrit Vijayakar, director of energy consultancy Trifecta.

“For the immediate future, in the absence of anything new, the first pressure point for oil markets would come around May 2019 or a month or so earlier when the ‘extensions of (Iran)waivers’ would be discussed.”

Gold prices scaled a six-month high on Monday but was poised for its first annual decline since 2015 after previous declines on higher interest rates and dollar strength from the China-U.S. trade conflict.

Spot gold rose 0.1 per cent to US$1,282.62 an ounce, with a dip in the dollar helping to lift the metal to its highest since June 19. U.S. gold futures were also up 0.1 per cent at US$1,284.

Trump’s comments Sunday that a possible trade deal between the United States and China was progressing well helped equities but not necessarily gold.

“Looking at the equity markets, one can clearly see that there is positive optimism around this subject. However, gold traders aren’t willing to pay too much attention to this,” said Naeem Aslam, chief market analyst at Think Markets UK.

Gold prices jumped about 5 per cent in December, mostly because of wild swings in equities, but it has declined nearly 1.6 per cent for the year.

Currencies and bonds

The Canadian dollar was up marginally Monday, trading in the 73.4 cent US range, as gold and oil prices rose.

The U.S. dollar was broadly steady in thin year-end trading on Monday with the Australian dollar leading gainers as tensions over a trade dispute between the United States and China faded on expectations of progress in trade talks.

The Australian dollar gained 0.4 per cent to $0.7063 but on the year is down 10 per cent.

The Aussie has suffered against the greenback this year due to tensions between the world’s two biggest economies because of its status as a currency highly correlated to global trade.

The dollar was broadly steady at 96.43 but is set to close the year up nearly 5 per cent against its rivals on trade tensions and rising interest rates.

China and the United States have been in a trade war for much of 2018, shaking world financial markets as the flow of hundreds of billions of dollars worth of goods between the world’s two largest economies has been disrupted by tariffs.

Going into 2019, the outlook for the dollar is more subdued with growing expectations that a three-year rate hiking cycle in the United States has come to a close. Markets currently expect no rate hikes next year.

“Along with growing expectations of no more rate hikes, the familiar issues of the twin deficits is expected to weigh on the dollar next year,” said Alvin Tan, a currency strategist at Societe Generale in London.

The dollar has been relatively stable going into the end of 2018 despite falling U.S. Treasury yields. The U.S. 10-year Treasury bond yield was at 2.71 per cent on Monday, having fallen nearly 30 basis points in December.

Canada’s 10-year government bond yield was up slightly at 1.961 per cent.

Stocks to watch

A group of Rogers Media employees has crafted a proposal to buy the company’s magazine brands, in an attempt to save jobs at a division the communications company no longer wants to own. The group has put forward a plan to purchase Rogers Communications Inc.'s five remaining print magazines – Maclean’s, Today’s Parent, Hello! Canada and Chatelaine’s English and French editions – as well as digital titles Canadian Business and Flare and a custom content unit, which creates editorial-style content such as branded magazines for companies.

Large crowds flocked to Canada Goose’s new outdoor wear store in downtown Beijing, its first in mainland China, since its opening on Friday, despite sub-freezing temperatures and a chill in bilateral ties. A long line of shoppers swaddled in thick winter coats queued outside the two-storey store on Monday afternoon, with waiting times for a quick peek at Canada Goose’s 9,000 yuan (US$1,300) parkas of an hour or more.

Economic news

Japan, China and Germany markets closed

China PMI

(10:30 a.m. ET) U.S. Dallas Fed Manufacturing Activity for December. The Street expects a reading of 17.6, unchanged from November.

With files from Reuters

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