The FTSE 100 had a stellar run yesterday as it closed up more than 3% and it hit its highest level since level early March.
For the third day in a row, the FTSE 100 was the best performer in terms of percentage gains of the major European indices but keep in mind it lagged behind its continental equivalents and now it appears that it is catching up. The British index largely had a handful of mining, banking and oil stocks to thank for its impressive run this week.
Earlier in the week there were a lot of headlines about sticker restrictions and extensions to lockdowns but traders shrugged off the fears yesterday, probably because it wasn’t a total shock that Covid-19 cases would increase in late December. Several countries in European will have to endure tough restrictions in the near term but the longer term view is that vaccinations will continue to be rolled out and that should lead to economies being slowly reopened again.
The European Medicines Agency signed off on the Covid-19 vaccination that is produced by Moderna (NASDAQ:MRNA). Before Christmas, the EU approved the BioNTech’s (NASDAQ:BNTX) coronavirus drug, so things are moving in the right direction, but nobody is expecting the process to be quick.
Equities broadly rallied yesterday as traders took the view that the Democrats would win the two seats in the Georgia dual Senate race. News agencies reported that both Democrats are projected to win. Optimism was dong the rounds because there was a view that the future Biden administration would go down the stimulus route. The Dow Jones jumped 1.44% and set a record close. It wasn’t a case of a broad based rally as the NASDAQ 100 finished down 1.4% as there were concerns that President-Elect Joe Biden would bring in laws so big tech companies would pay more in tax. Rioting in Capitol Hill by pro-Trump supporters weighed on sentiment towards the end of the US session.
The disturbance at Capitol Hill derailed the process of certifying the Biden electoral victory for a number of hours but it then continued so the final confirmation of Biden’s win should be relatively straightforward.
Stocks in Japan and Australia are showing solid gains on the back of the moves seen in the Dow Jones. Equities in Hong Kong and mainland China are in the red as the NYSE has made another U-turn and it will delist a number of Chinese telco stocks. The US-China relationship is under strain as the Beijing authorities are taking a tough line against pro-democracy activists in Hong Kong. European markets are being called higher.
The Fed minutes revealed last night that there is unanimous support for the ‘outcome based approach’ to the asset purchase programme. The update made it clear that there would be plenty of notice ahead of any reductions in the bond buying scheme. Only a couple of central bankers are open to the idea of purchasing longer-dated bonds. The minutes pointed out that the economic recovery has been better than expected but lately there have been some signs of a softening of the rebound.
The US dollar has been on a bearish run lately and yesterday it fell to a 33 month low but then saw a sharp rebound. The strength of the turnaround could be a sign that we have seen the low in the US dollar in the near-term.
Gold was already drifting lower from mid-morning yesterday and the move higher in the US dollar in the afternoon sped up its decline. Recently, the inverse relationship between the yellow metal and the dollar has been strong so that was a large factor in gold’s bearish move. The impressive move higher in indices like the Dow Jones and the FTSE 100 hurt the commodity too as traders shied away from lower-risk assets.
Oil had a monster rally on Tuesday on the back of aggressive output cuts from Saudi Arabia. Yesterday it was announced that the oil producing nation raised the price of February crude oil for Asia. The EIA report showed that US oil inventors fell by over 8 million barrels, which speaks to high demand. Brent crude oil and WTI closed up 1.3% and 1.4% respectively. The oil market hit an 11 month high.
At 7am (UK time), German industrial orders for November will be posted and economists are expecting a reading of -1.2%, and that would be a big drop off from the 2.9% posted in October.
The UK construction PMI report for last month is tipped to be 55, and keep in mind the November reading was 54.7. It will be posted at 9.30am (UK time).
Eurozone CPI for December is expected to be -0.2%, up from -0.3% in November. The core CPI reading is tipped to hold steady at 0.2%. The inflation readings will be posted at 10am (UK time). At the same time, the retail sales report for November is expected to be -3.4% and that would be a big decline from the 1.5% registered in October.
The initial jobless claims report will be in focus in light of the disappointing ADP reading revealed yesterday. Economists are expecting the jobless claims report to be 800,000, up from 787,000. The continuing claims metric is tipped to dip from 5.21 million to 5.2 million. Yesterday, the ADP report showed that 123,000 jobs were lost, and keep in mind that in November, 307,000 jobs were created. There have growing concerns that the US economic rebound is losing a little momentum and the ADP update is evidence of such a cooling. The jobs numbers will be announced at 1.30pm (UK time).
The ISM non-manufacturing update is tipped to slip from 55.9 in November to 54.6 in December. It will be announced at 3pm (UK time). The November report was the lowest rate of expansion in six months, and that also ties in with the view that the economy is slowing down.
EUR/USD – has been in an uptrend since the start of November and while it holds above the 50-day moving average at 1.2000, the positive move should continue. Resistance might be encountered at 1.2480. A move lower could see it target 1.2129.
GBP/USD – since late September it has been in an uptrend and on Monday it hit a 32 month high. If the positive move continues, it could target 1.3798. A pullback might find support in the 1.3429 area. A further pullback could target 1.3322, the 50-day moving average.
EUR/GBP – has been in a downtrend since mid-December and further losses might target 0.8864. Monday’s candle was bullish and if it holds above 0.9000, it could put the 0.9100 area on the radar.
USD/JPY – yesterday’s candle has the potential to be a bullish daily reversal and if it moves higher from here it could encounter resistance at the 50-day moving average at 104.06. Should the wider bearish move continue it could target 102.00.
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