European equity markets rallied yesterday as bargain hunters swooped in, the positive sentiment took hold despite the continued political stories. The relation between Rome and Brussels was further strained yesterday, when the EU said it would discipline the Italian government for its planned budget deficit. The anti-establishment coalition didn’t bend to the might of the EU, and joint deputy prime minister, Matteo Salvini, said that sanctions would be disrespectable to Italians.
Italy is a net contributor to the EU, and the country has the third largest government bond market in the world, and Brussels better not rock the boat as a spike in Italian government bond yields could spark another round of the eurozone debt crisis. Should we see Italian banks get into trouble, the fallout is likely to be far greater than the Greek crisis.
US indices largely finished higher on the day, and they closed off the highs of the session. The ground handed back in the last few hours of trading doesn’t inspire confidence. The US celebrates Thanksgiving today, and it would appear that investors didn’t want to be overly long going into the holiday. Asian equity markets were mixed last night amid ongoing trade tensions between the US and China.
Prime Minister May was in Brussels yesterday trying to finalise a deal ahead of the EU summit on Sunday. Issues like Gibraltar, access to the single market and fishing still to be dealt with. Mrs May is under enormous pressure from her own party already, and it is essential that she is seen to be standing up for the UK. As it stands, the draft withdrawal agreement appears to be very unpopular, and dealers are wondering if she will be able to get it passed in parliament. The constant Brexit related news provides the background noise, but any indication the UK is heading for ‘no deal’, is likely to send the pound lower.
Oil enjoyed a big bounce back yesterday, the upward move still only managed to claw back roughly half of the previous day’s losses. The energy information administration inventory report showed that oil stockpiles increased by 4.85 million barrels, but gasoline inventories dropped by 1.29 million barrels – its lowest level since December 2017. The report also showed that crude stockpiles at Cushing, Oklahoma – delivery hub, fell for the first time in nine weeks.
The US revealed mediocre economic announcements yesterday. The durable goods report showed a 4.4% drop in October, but the report that removes transportation showed an increase of 0.1%, so the retail landscape isn’t as bleak as originally thought. Jobless claims ticked up by 8,000 to 224,000, which is isn’t a major issue seeing as the labour market is at its strongest in decades. The University of Michigan consumer sentiment report dipped to 97.5 – a three month low. Despite the underwhelming data from the US, there is still wide speculation the Federal Reserve will hike rates in December.
Markets are likely to be quiet today as the US celebrates Thanksgiving. French business sentiment index and the eurozone consumer confidence reports will be announced at 7:45am (UK time) and 3pm (UK time) respectively.
EUR/USD – has been diving lower since late September and if it holds below the 1.1510/00 region, it could pave the way for the 1.1215 area to be retested. A move to the upside could run into resistance at 1.1555 – the 100-day moving average.
GBP/USD – has been moving lower since early October, and if the bearish move continues it could target 1.2661. If the 1.3000 mark is retaken, it might put 1.3174 on the radar.
EUR/GBP – the momentum is to the upside, and a break above 0.8939 might bring 0.9000 into play. Support might be found at 0.8834 – the 200-day moving average.
USD/JPY – the upward trend that began in March is still intact, and if the positive move continues it might target 114.73. Support might be found at 112.00
FTSE 100 is expected to open 7 points lower at 7,043
DAX is expected to open 8 points higher at 11,252
CAC 40 is expected to open 5 points lower at 4,970
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