Markets to start 2020 on a high, but will it stay that way?

Dubai: With world stocks scaling record highs, analysts said they expected it to stay that way in the coming days while signalling that trading volumes will remain light.

Stocks typically rise in the last few days each year during the so-called ‘Santa Claus’ rally as funds adjust year end positions and global indices are hovering at multi-year highs as optimism grew that a US-China trade deal would soon be signed.

“The end of the year rally is continuing for the right reasons,” said Peter Cardillo, chief market economist at US-based Spartan Capital Securities. “The market is focusing on the fact that we’re seeing some daylight in the trade war.”

Traders returned from their Christmas break to digest comments from Beijing that it was in close contact with Washington about an initial trade agreement. US President Trump on Christmas-eve said that the “deal is done, it’s just being translated right now” and signalled a signing ceremony for the partial trade resolution in January.

Rally “real”

“Stocks look like they just won’t quit. The rally is for real,” said Chris Rupkey, chief financial economist at global financial group MUFG. “The economy’s engines continue to hum.”

The Nasdaq earlier topped 9,000 for the first time ever, less than a year after it closed above 8,000. The benchmark S&P 500 was set to gain 28 per cent this year, its biggest annual gain since 2013 and ended with a weekly gain in 10 out of the past 11 weeks.

MSCI’s gauge of stocks across the globe gained 0.6 per cent last week and remained on track for its best year since 2009 with gains over 25 per cent.

Analysts said while the overall sentiment is expected to remain positive in the short-term, they cautioned that a number of overhanging geopolitical risks could turn 2020 bitter.

“The trade war is far from over,” said Piotr Matys, FX strategist at Rabobank. “In our view, this is just a temporary truce. Another unsolved major issue is Brexit. Geopolitical risk can suddenly resurface.”

The US-China trade war rattled international commerce. Bilateral trade between the two largest economies fell 15.2 per cent in the 12 months through November versus the same period ended in 2018, according to Panjiva, an S&P Global Market Intelligence unit.

Regional highs

The main indices on the Dubai and Abu Dhabi bourses were set to end the year on a high note, even as they ended lower last week.

Dubai’s DFM, which shed 0.1 per cent last week, is expected to close over 9 per cent higher in 2019. Abu Dhabi’s ADX, which inched down 0.8 per cent last week, is expected to rise over 2.5 per cent annually.

“The recent rise in oil prices will lead to renewed optimism for MENA region, especially the GCC,” said Iyad Abu Hweij, managing director at Allied Investment Partners PJSC, adding that a sustained rise in prices will boost investor confidence to drive markets higher in 2020.

Oil is set to see one of its best months of the year mainly driven by easing US-China trade relations, as well as consensus among the Organisation of Petroleum Exporting Countries (Opec) and its allies for further output cuts. Benchmark US crude and Brent crude prices have increased 35.92 per cent and 26.70 per cent, respectively, so far this year.