European markets look set to open sharply lower at the end of the week as Chinese and Japanese industrial production levels sink in November exacerbating concerns that the neither the Asian nor European slowdown is being met with enough central bank liquidity.
It has been a tumultuous time for equities which got exhausted and corrected an extensive liquidity-driven rally this week. With the ECB holding back on any more moves until next year, if at all, the PBOC countering its easing measures with tightening measures and Abenomics set to face the voting public in Japan; stimulus doesn’t appear quite as forth coming as it had looked just a few weeks earlier.
European equities managed to claw back some gains on Thursday as a tepid second TLTRO auction means sovereign bond purchases are still a strong possibility for next year and better US employment, wage and retail sales data offered some chance that an improving US economy can lead the global recovery back on track.
The UK stock market hasn’t fared quite as well, today’s open means the FTSE 100 will have tumbled two-thirds of its rise since October in just a week as commodity-related shares in energy and mining have been hit hard.
The euro has made some headway since the ECB failed to act at its last policy meeting but rolled over at the 1.25 psychological levels on Thursday after poor TLTRO results from the ECB meant QE could be on for next year while strong retail sales strengthened the US Dollar.
The single currency may face renewed pressure in early trading on Friday as more low inflation figures are expected from Spain and Italy following flat prices reported in Germany and deflation in France during November. Eurozone industrial production is expected to remain at a less-than dazzling 0.6% annual increase.
The British pound responded well to proposed policy procedural adjustments by Bank of England Head Mark Carney. New procedures would involve eight meetings per year instead of the current twelve with the policy decision, minutes and quarterly inflation reports all to be disclosed at the same time.
The result of the Carney’s changes will hopefully be more transparency on the BOE’s policy stance but in good news for day traders could add to volatility on the day of the release.
EURUSD – After the 6th test, the euro broke above the declining trendline that started October 15th but ended the day straddled across it. Range-bound conditions still offer a good chance that the pair will run up to 1.26 while still above 1.23.
GBP/USD– The pound dropped away from December 1st high but has bounced back after a short correction and looks well positioned despite the longer term downtrend for further upside potential toward 1.58.
EURGBP – The euro-sterling cross has been oscillating around 1.79 for the past six trading days. The longer term trend is down but higher lows off the 0.78 base suggest a potential test of 0.80.
USDJPY – The dollar-yen held onto 117.24 the Nov 27 low to indicate the uptrend is still on but has not yet regained 120.
Equity market calls
FTSE 100 is expected to open 64 points lower at 6,397
DAX is expected to open 92 points lower at 9,770
CAC 40 is expected to open 43 points lower at 4,182
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