Pedestrians walk along Wall Street as a Christmas tree stands in front of the New York Stock Exchange in New York. Image Credit: Bloomberg

Dubai: As global markets head into a shorter trading week ahead of Christmas, stocks are set to finish the year strong.

Top Wall Street indices touched record highs last week, driven by progress on the US-China trade and Brexit fronts and expectations of a modest recovery in global growth. The mounting momentum in markets will continue to drive gains again this week.

“The Christmas-holiday shortened week will continue to depict a positive trend as investors remain hopeful about the US-China trade deal,” said Iyad Abu Hweij, managing director at Allied Investment Partners PJSC.

“The market’s trade sentiment dial has turned squarely to relief, if not optimism, after trade-induced market sell-offs in May and August,” said Craig Fehr, investment strategist at Edward Jones. “Receding tariff threats has drowned out recession calls and we still don’t see a recession in the coming year.”

Global manufacturing activity is stabilising and central banks around the world are cutting interest rates. The recession fears of a few months ago — reflected in an inverted yield curve — have dissipated. The 2-year to 10-year yield spread, which briefly went negative in late August, stands at 30 basis points as of Friday morning, the steepest spread in over a year.

“Our baseline outlook sees an acceleration in global GDP in 2020, led by stabilisation in developed market activity, and an upturn in emerging market activity,” says Jonathan Miller, an economist for Barclays.

Also, riskier assets like oil — coming on the heels of its third consecutive week of gains — are set to rise, on the back of optimism over the US-China trade deal coupled with encouraging economic data.

Short-lived joy

Certain analysts cautioned, however, that the gains may be short-lived going into 2020, as long-term investors look to park their investments in ‘safe’ assets, protecting them from any further volatility seen in 2020.

“With less than two weeks to New Year we are leaving 2019 with a feeling of bewilderment and a sense of “can this really continue?”, as the year shaped up very differently from what we expected a year ago,” said Peter Garnry, head of Equity Strategy at Saxo Bank.

”Markets are characteristically bullish right now, but many investors are aware this may not last, so they may prefer to bet on stocks which offer a better risk/rewards profile, providing a “safer” investment option were markets to turn in 2020,” Stephane Barbier de la Serre, macro strategist at Makor Capital Markets.

Because the so-called phase-one trade deal focused on tariff reduction and farm goods purchase and left the contentious issues like China’s industrial policies and domestic subsidies for later deals, further trade-related volatility is seen in the horizon.

Additionally, the British pound, which gained after the pro-Brexit Conservative party’s election win, erased all of those gains and is seen dropping further on renewed fears of a chaotic Brexit after the government put an ultimatum that it would leave the bloc by 2020-end, with or without a deal.

Economic data in the US will be light this week, with building permits, continuing jobless claims, and the Chicago Fed National Activity Index a few of the measures being released.

Local gains

Regional markets, which ended last week in positive territory, is expected to mirror marketwide sentiment and rise this week while keeping its eyes on Aramco’s second week of trading after being added to global and local indices.

“Regional markets, on the other hand, will be primarily driven by the positive developments in the global markets coupled with increased investment inflows from international investors, following the IPO of Saudi Aramco,” Iyad Abu Hweij added.

Aramco ended in the red after its first full week of trading, falling short of the kingdom’s long-sought $2 trillion valuation mark, but shares were still 11 per cent above the set IPO price. Analysts see further profit-taking this week as most of the Aramco investors is expected to close their investment positions given it’s the end of the year.