- FOMC stance helps lift global markets on Thursday;
- German Ifo provides optimism ahead of 2015;
- UK retail sales surge on black Friday sales;
- Putin inaction gets market disapproval as rouble falls further;
- US jobless claims, PMIs and Philly Fed figures in focus today.
An upbeat Fed message on the economy on Wednesday combined with encouraging economic data from Germany and the UK this morning is helping to lift global markets on Thursday, with US futures pointing towards another day of strong gains.
It was widely expected that the FOMC would remove its pledge to keep its target range for the federal funds rate between 0 and 0.25% for a “considerable time” after the end of quantitative easing, which came in October, but it instead opted to just soften the language around it, making it less of a commitment and more guidance. The message remained fairly dovish with the Fed stating that it would be patient when it comes to raising rates.
The use of a number of caveats also gave it the option to be very flexible with the hikes. The most important message that came from this was that we’re unlikely to see a rate hike in the next couple of months but the US economy is finally in a position to stand on its own two feet and the markets clearly approve of the message.
The German Ifo business climate reading for December exceeded forecasts this morning, rising to 105.5 up from 104.7, with the rise being led by the expectations figure that rose to 101.1 from 99.7. Current assessment was unchanged at 110. While these figures don’t necessarily come as a great shock given the similar improvements in the manufacturing PMI and ZEW readings earlier in the week, they are nonetheless encouraging.
The stabilisation in the current assessment figure alongside a more optimistic outlook hopefully points to some form of resurgence going into 2015 following what has been a year to forget in 2014.
UK retail sales were much stronger in November than expected which is helping to feed into the strength in the pound this morning. Any gains following the release were quickly reversed but this was probably largely driven by the strength of the rally into the release. It has since continued higher, further supporting the view that the reversal was merely a correction. It was expected that we’d see a small increase of 0.3% but this was smashed to bits, with the overall reading showing 1.6% growth, equating to a 6.4% improvement on the year.
Black Friday sales were largely behind the upside surprise driven by heavy discounting which generated record annual sales growth in electrical and department stores.
In Russia, Vladimir Putin addressed the nation and took the expected stance of blaming external factors for the countries struggles and currency decline. He appeared to offer little in the way of a solution to the crisis, instead assuring people that the recession would pass in the next couple of years as the global demand for oil recovers.
While his still strangely high popularity may mean he doesn’t receive a backlash from the Russian public for his inaction at a time of great distress for the country, the markets aren’t quite as forgiving and the dollar quickly rallied to 64 against the rouble before stabilising around 61. Once again, Putin is relying on nationalistic pride to get him through this, claiming the West is trying to put the “bear on a leash” and pull out its teeth. While this may work in his favour for now, once the economic troubles hit people hard, they may not be as willing to accept it.
Still to come today we have plenty of US data being released starting with the latest jobless claims figures. The numbers appear to be stabilising now just below the 300,000 level, with this week’s seen at 295,000. This remains a strong reading and provides further evidence of the strong position the US economy now finds itself in.
The preliminary reading of the December services and composite PMIs will follow this and both are expected to show a rebound from Novembers small decline. The services PMI in particular could give us some great insight into the expected spending patterns of the consumer in the always important holiday period. Also being release is the CB leading indicator and the Philly Fed manufacturing index so there’s plenty for traders to get their teeth stuck into today.
The S&P 500 is expected to open 24 points higher, the Dow 179 points higher and the NASDAQ Composite 50 points higher.
DISCLAIMER: Any views or opinions presented are solely those of the author and do not necessarily represent those of Alpari (UK) Limited, unless otherwise specifically stated. This content does not constitute investment advice.