Stocks have continued to move in their choppy range of the past few weeks with little in the way of new catalysts to spark a strong move one way or the other, but once again it’s been the prospect of further stimulus measures, as yet unknown from China, in the coming weeks that has helped put a floor under recent proceedings.
US markets posted a strong session yesterday buoyed to a certain extent by a failure to break below the lows of the last two months and a rebound in US crude oil prices which helped the US energy sector post some strong gains. What’s also helped in the last couple of days has been a strong rebound in natural gas prices from 15 year lows, though we still remain below the psychologically important $2 level, which marked the most recent thrust lower.
The rebound in US oil prices came about largely as result of some short-covering ahead of key API inventory data, which showed a much bigger than expected draw down on oil stocks. Meanwhile Brent prices have continued to struggle with the result that Brent prices traded below US prices for the first time since August 2010.
As a result strong US session we can expect to see a higher European open with a high probability that the oil and gas sector, which drove yesterday’s FTSE gains could well again push higher.
On the data front today we will get the final snapshot of UK Q3 GDP which, to some extent, has been slightly disappointing in the readings seen thus far in that it has only shown growth of 0.5%. There is an outside expectation that we could see an upward revision to 0.6% as a result of a strong September due to the Rugby World Cup and a buoyant services sector, which in turn should offer some optimism that Q4 will be similarly positive. As far as rate rise expectations are concerned, it probably won't move the dial that much in that a UK rate rise still seems some way off into 2016, after further policymaker comments in the last few days regarding the benign inflation outlook, and which has served to push the pound to eight month lows against the US Dollar, a rather strange state of affairs for one of the best performing economies in the G7 this year.
External MPC member Martin Weale, who at the end of 2014 had favoured a modest rise in rates, rather surprisingly suggested earlier this week that he was in no rush to nudge borrowing costs up, which for an economy that looks likely to set 12 successive quarters of economic expansion if Q4 is as positive as the rest of 2015, came across as a little bit of a surprise for someone who has always seemed to be more of a hawkish disposition. Later in the day we will also get a raft of economic numbers from the US including November durable goods, personal spending, personal income and the Fed’s preferred inflation indicator of PCE.
None of these data items are expected to support the case for tighter monetary policy, in fact of all the recent indicators they have been amongst the weakest with durable goods excluding transports in negative territory for the year to date. November is expected to show 0%, down from 0.5% in October. Core PCE is expected to show inflation running at 1.3%, unchanged from October, while personal spending for November it is hoped will see a modest improvement, prompted by the BlackFriday sales of 0.3%.
EURUSD – the euro continues to move away from its key support around the 1.0800 area, with the potential to return towards the 1.1000 area and a retest of the 100 and 200 day MA at 1.1040/50. Only a move below the 1.0800 level undermines this and argues for a retest of the 1.0620 area.
GBPUSD – the pound continues to weaken breaking below 1.4850 yesterday as it continues to drift lower with the potential to return towards the lows of the year at 1.4565. To break the current downside momentum we would need to see a move back through the 1.5030 level.
EURGBP – the break through the 0.7300 area could well see the euro push up back towards the October peaks at 0.7495. Having held for all of last week the 0.7300 area should now act as support on any pullbacks, with interim resistance at 0.7375.
USDJPY – continues to chop within the broad range with the 122.20 area acting as a pivot. While below here support sits near 120.00, while a break above retargets the highs just above 123.00
Equity market calls
FTSE100 is expected to open 43 points higher at 6,126
DAX is expected to open 82 points higher at 10,570
CAC40 is expected to open 35 points higher at 4,602
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