US markets finished another strong week this time helped by retail stocks as US consumers hit the shops with vengeance, with Amazon (NASDAQ:AMZN) posting new record highs while traditional retailers also posted good gains with Macy’s (NYSE:M), Nordstrom (NYSE:JWN) and Kohl’s (NYSE:KSS) having a decent day.
All three major US benchmarks posted new record highs and closes last week with the S&P500 closing above 2,600 as investors once again placed their faith that we’ll see some form of tax reform or tax cuts by the end of the year. This still seems unlikely given that US politicians still need to agree on raising the debt ceiling in the coming days, something that US investors appear to have forgotten about in their fixation about tax cuts.
European markets managed to arrest their recent declines closing marginally higher on the week, though some of last week’s stabilisation after two successive weekly declines was tempered by the rebound in the euro, and some uncertainty over politics in Germany, though that concern appears to be passing now amidst reports that there might be a revival of a limited Grand Coalition with the SPD, as efforts to form a new government continue.
This remains by no means certain given local splits within the party. Part of the reason for the polarisation in German politics may be down to the fact that in the last twelve years it didn’t really matter who which party you voted for because you always ended up with Angela Merkel. That might explain some of the reluctance of the smaller parties to go back into coalition and also explain why politics in Germany is fragmenting.
The rebound in the single currency was helped by much improved November PMI data from Germany and France which showed that rather than seeing a tapering of economic activity as we move into Q4, activity appears to be accelerating, reaching multi year highs in the process, while German business confidence hit a record post-unification high at 117.50, and up from 116.7 in October.
The US dollar had a lousy week closing close to a two month low after last weeks Fed minutes, showed that there was a widespread reluctance amongst US policymakers about raising rates much above current levels.
While a December rate move remains a done deal in the eyes of the markets, it’s what comes after that which is becoming less clear. There were positive views about the jobs market as well as general economic activity across the board, but there were diverging views about the lack of inflation, and it is this uncertainty about US rate policy in 2018 which continues to undermine the currency against the backdrop of a flattening yield curve.
Brexit chatter is likely to act as a catalyst for movement in sterling this week amidst reports that the Irish government could prove to be an obstacle to moving Brexit talks forward, until the border issue has been settled. Unfortunately for them local political difficulties could result in the collapse of the government and new elections in the coming days, which could mean that the EU deadline for sorting out the Irish border issue might well slip.
Oil prices are expected to be in the spotlight this week as OPEC gets set to meet in Vienna amidst speculation that the oil price cap that has been in place for nearly a year now could get extended further than the current agreement of March 2018.
Crude oil prices have already risen sharply in the past two weeks or so to their highest levels in over two years on expectations of rising demand, as well as the closure of the Keystone pipeline. The rise in oil prices was also helped on reports that OPEC and Russia had arrived at an agreement on the framework for a deal. If these reports turn out to be untrue, and there is talk that Russia is cool on a further extension then prices could correct sharply lower.
EURUSD – last week’s push above the October peaks above 1.1880 brings the prospect of a retest of the 1.2000 area and a retest of the previous peaks at 1.2092. Having been resistance for several weeks the 1.1870 area now becomes support and below that at 1.1720.
GBPUSD – pushed slightly beyond the 1.3350 area last week before slipping back but still remains on course for a retest of the 1.3450 area. Only a move below 1.3120 opens up the prospect of a retest of the range lows at 1.3030.
EURGBP – needs to push through the 0.8960 area to argue for a retest of the 0.9020 area. While below the risk is for a move back towards the 0.8820 level. We could see a test of major support near the November lows at 0.8735.
USDJPY – has fallen through the 111.80 area as well as the 200 day MA and looks set to for a move down towards the 110.30 area. This negative development could see a revisit of the range lows. We need to see a move back above 112.00 and the 200 day MA to stabilise.
FTSE100 is expected to open 6 points lower at 7,403
DAX is expected to open 11 points lower at 13,048
CAC40 is expected to open 6 points lower at 5,384
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