China May Halt Treasury Purchases

US stock markets opened lower and traded down in the first thirty minutes of trading however they recovered most of these losses throughout the rest of the day. The market was initially shaken by a report that China is looking at slowing or halting its purchases of US bonds.  As the largest foreign holder of US treasuries, any slowdown in purchases could send yields higher. In fact, yields did spike on the initial news release however they subsequently retraced back to their starting level. This announcement by China is seen as a something of a retaliation by China in the face of tariffs that President Trump is considering imposing on Chinese imports.

The gold price initially spiked on the news out of China however it subsequently retreated to close approximately US$5 higher. After a strong rally over the last month, gold appears to now be consolidating those gains as it holds steady near a three and a half month high.

Oil prices initially dropped after the Department of Energy report showed inventories declined less than expected last week while both gasoline and distillates inventories rose. On the other hand, US production fell unexpectedly by almost 3% compared to the prior week, likely as a result of the especially cold weather there that may have impacted production in some areas. On balance, the market ultimately saw the report as neutral and WTI oil is currently trading little changed at US$63.45 per barrel.    

Today Australia releases its retail sales data which is expected to show decent growth of 0.4% for the month of November. The ASX 200 had a negative day yesterday but considering the strong rally over recent weeks a pull-back is not unexpected. The index is still up around 0.5% for the year to date.   

Data Releases:

-    Australia Retail Sales 11:30pm AEDT

-    US PPI 12:30am AEDT

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This article was written by William O'Loughlin - Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via william.oloughlin@rivkin.com.au or by phoning +612 8302 3633.

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