In the absence of negative factors US markets shrugged off a disappointing November new home sales number yesterday, once again closing at new record highs, as a renewed sell off in Oil prices continued to boost sentiment on the basis that lower fuel costs would leave consumers with more disposable income, as well as keeping downward pressure on inflation, making an imminent Fed rate move much less likely.
This is likely to translate into a higher European open across the board, but the FTSE100 could well find progress difficult given the high percentage of energy stocks in the index.
Yesterday’s oil price sell-off reversed earlier gains after the Saudi oil minister Ali Al-Naimi dropped the market equivalent of a hand grenade on perceptions that we could well have seen a short term base in prices. The Saudi ministers comments at the weekend that he believed the recent fall in the oil price would be temporary had raised an expectation that we could well have seen a temporary floor under prices.
His subsequent comments late yesterday pulled the rug out from under that particular perception after he stated that Saudi Arabia had no intention of cutting its own output and would even be prepared to increase it given the right set of circumstances irrespective of whether the price was at $20, $30 or $40.
It seems that Saudi Arabia is digging in for the long haul as it looks to protect its market share by squeezing both OPEC as well as non-OPEC members like Russia. While we saw strong gains for the rouble yesterday, further pressure on Brent oil prices and a move below the recent lows at $58 could well see further sharp declines in Russia’s battered currency.
A further sell-off will in oil prices is not likely to go down too well inside OPEC either, with Venezuela, Iran and Iraq likely to be vocal behind the scenes about the effects lower prices are having on their budgets.
With that in mind we can probably expect more contradictory jawboning from OPEC officials which is likely to cause prices to flip flop sharply.
This late sell-off in oil prices while acting as a boost to global equities generally, continues to act as an anchor on the FTSE100, with its high percentage of energy related stocks.
As we head into the last full trading day before Christmas we have a data deluge to contend with today starting with Q3 GDP numbers from France, which it is expected will be confirmed at 0.3%, as well as from the UK, and the US, though most of the numbers shouldn’t prove too much of a surprise.
The French GDP numbers are expected to be confirmed at 0.3%, rather surprising given the shockingly weak PMI numbers we’ve seen in recent months, but this is likely to be largely down to government spending, as opposed to private sector investment.
We then go on to the final Q3 GDP numbers from the UK which is expected to be confirmed at 0.7% and 3% annualised. The business investment numbers are a concern after the recent adjustment to -0.7%, suggesting that businesses cut back due to uncertainty over the Scottish referendum, with the hope that we will probably have seen a rebound in Q4.
We also have US Q3 GDP which is expected to be revised up to an annualised 4.3%, while durable goods ex-transports for November are expected to rebound from the poor October number of -1.1% to a gain of 1%.
The recent falls in oil prices could well see an increase in personal spending in November with a rise of 0.5% expected, up from 0.2% in October.
EURUSD – the current move lower in the euro is coming up against long term support at 1.2220/25 which is trend line support from the 2010 lows as well as the 200 month MA which has kept a floor under every euro decline since 2005. A sustained break here could well open up a move below the 2010 lows at 1.2040 and a move towards 1.1500.
We need a rebound back through 1.2500 to stabilise.
GBPUSD – this month’s low at 1.5540 remains the key obstacle to a move towards 1.5245, which is trend line support from the January 2009 lows at 1.3500. While above this key support the risk of a rebound back towards 1.5800 remains the more probable outcome.
EURGBP – the current euro weakness looks set to move back towards the lows earlier this year at 0.7765, but there is also interim support at 0.7799, which is the November lows. To stabilise the euro needs to get back through the 0.7930 area.
USDJPY – after being rebuffed at 122 earlier this month the US dollar has slipped back, but now appears to be rebounding strongly from lows at 115.60. We need to push back through the 120.00 level to suggest a retest of the highs. The risk remains to the downside after the bearish engulfing week a couple of weeks ago. A move back below 117.80 argues for move back towards the lows this month at 115.60.
Equity market calls
FTSE100 is expected to open 34 points higher at 6,610
DAX is expected to open 37 points higher at 9,902
CAC 40 is expected to open 16 points higher at 4,270
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