European markets finished a rather dull and uneventful session more or less unchanged yesterday, while US markets continued to make new record highs.
Optimism around trade discussions has once again helped to underpin sentiment after reports that China’s negotiator Liu He and US trade negotiator Robert Lighthizer had reached a consensus on how to resolve a number of core issues while keeping lines of communication open with a view to resolving other remaining issues.
It still remains unclear what the timing is likely to be on the agreement of a phase one deal, however, with three weeks until December 15th, and it’s not hard to imagine that it is highly unlikely that we’ll get anything tangible before that. This is the date when the next round of tariffs is scheduled to kick in and would suggest that President Trump will want to keep that option open until the very last moment.
There still seems to be an element of divergence between markets in Europe and those in the US, which can be partly explained by the fact that US data continues to show little sign of weakness in the short to medium term.
US consumer confidence was slightly softer in November, coming in at 125.5, but not by enough to show that US consumers were inclined to slow down spending wise. Furthermore, the housing market also appeared to show signs that it might be picking up, putting in its best two-month performance in 12 years, helped by recent falls in US long term rates.
Today’s latest iteration of US Q3 GDP is expected to show that the US economy grew at 1.9%, unchanged from its first reading a few weeks ago. A close eye will also be paid to the personal consumption component of the number, which is expected to remain steady at 2.8%.
More importantly, we’ll also get sight of the latest personal spending numbers for October, which gets released a little later and is more current, in terms of how Q4 is likely to shape up for the US economy. These are expected to rise 0.3%, up from 0.2% while the Fed’s measure of core inflation is expected to hold steady at 1.7%.
Anything in line with expectations from today’s data is likely to mean that the Fed is likely to be done on the rates front until early next year at the earliest.
The pound had a slightly softer day yesterday after opinion polls showed that Labour had cut the Conservative lead to about 7 points, in the wake of the recent manifesto launches. The flakiness of recent moves is unlikely to improve as we head towards polling day, though it will be interesting to see if the polls shifted again in the wake of Labour leader Jeremy Corbyn’s roasting by Andrew Neil on the BBC last night. If it had been a boxing match, the towel would have probably gone in. The downside to that is Prime Minister Johnson has yet to take his turn in the Andrew Neil bear pit.
EURUSD – continues to look a little soft with support at the lows this month just above the 1.0980 level. The risk remains for a move below the 1.0980 level, with a break opening up a return to the October lows of 1.0880. Broader resistance can be found at the 1.1180 area and 200-day MA.
GBPUSD – the resistance at the 1.3000 area continues to cap the upside, while we also have support at the 1.2760 area. The 200-day MA at 1.2680 is a big support level, and while above it, the scenario remains bullish for 1.3200.
EURGBP – pressure remains on the downside while below resistance at the 0.8670/80 areas, and recent range highs. Support currently at the November lows at 0.8520, on the way to the lows this year at 0.8410.
USDJPY – currently has resistance at the recent highs at 109.50 area. The failure to follow through towards 110.00 keeps the risk for a move back to the lows this month at 107.80. We also have interim support at the 108.20 area and 50-day MA.
FTSE 100 is expected to open 10 points higher at 7,413
DAXis expected to open 26 points higher at 13,262
CAC 40 is expected to open 7 points higher at 5,936
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