It was a mixed bag for European equity markets yesterday as the FTSE 100 closed modestly higher while the indices in mainland Europe posted losses.
The same old themes were in the mix as the health crisis is playing on traders’ minds but at the same time, the news surrounding vaccines is doing the rounds too. The UK is hoping to issue the first doses of the Pfizer-BioNTech vaccine within a few days, while it is looking likely that vaccines won’t be distributed in the EU until early January.
The European Medicines Agency (EMA) has received some criticism for not acting as swiftly as the UK regulator, but it is arguing that it is adopting a more in-depth approach to examining the drugs. The relative underperformance of eurozone stocks could be attributed to the fact the EMA is taking longer to go through the authorisation process.
The FTSE 250 was the standout performer of European indices yesterday but that was also on account of the optimism surrounding the UK-EU trade talks. Discussions are still ongoing and for the last two days, the negotiations continued on into the late hours. The Irish Foreign Minister, Simon Coveney, said yesterday that talks are approaching the ‘very end’. Sterling was lifted too on the back of the hopes.
Towards the end of the US trading session, Pfizer cut in half its planned vaccine delivery targets for this year on account of supply issues – raw materials didn’t meet their standards. Pfizer-BioNTech will up vaccine production in 2021 to make up for the difference. The update from the pharma giant caused the S&P 500 to retreat from its new intra-day record high. With respect to the proposed US coronavirus plan there is growing support for the $908 billion package.
Markets in Asia are muted and European indices are tipped to have a quiet start as the US jobs update is on the radar.
The US non-farm payrolls report is released at 1.30pm (UK time) and it is expected to show that 469,000 jobs were created last month, and that would be a drop from the 638,000 registered in October. The unemployment rate is tipped to be 6.8%, down from the 6.9% in the previous update, and the yearly average earnings metric is expected to slip from 4.5% to 4.3%. A fall in wages could be viewed as positive for the economy, as it could be an indication that more lower-income workers have returned to the workforce.
The participation rate in October ticked up to 61.7% - its joint highest reading since the health emergency happened. It would appear that more people are actively looking for work and that should be interpreted as an increased sign of optimism within the labour market. During dire economic times, some unemployed people stop looking for work as the environment is so bad, and therefore it is encouraging to see the participation level edged up in October.
After much back and forth Opec+ decided to row back on their production cuts of 7.7 million barrels per day (mbpd) to cuts of 7.2 mbpd. The change in production will commence in January.
The major economies of Europe revealed their latest services reports for November yesterday and the impact of the lockdowns was evident. There was a clear drop off in activity but in most cases the readings were not as low as economists had predicted. France suffered the most as the metric tumbled from 46.5 to 38.8, while the British reading was 47.6, which easily topped the forecast of 45.8.
The dollar’s decent continued as it fell to a new 31 month low. US equities gained ground yesterday and the S&P 500 racked up yet another intra-day all-time high. Lately the greenback has attracted safe haven flows so it seems the dollar is suffering on account of the risk-on mood. It is worth remembering that the Federal Reserve are committed to doing what it takes to assist the economy.
Gold was given a hand by the weakness in the dollar. Since Tuesday, the commodity has been recovering from the painful sell off that it endured in late November. Further gains from here could run into resistance in the $1,850 area – which was a closely watched support region in recent months.
At 7am (UK time) the German industrial orders report will be posted and economists are expecting it to show a rise of 1.5%, which would be an increase from the 0.5% posted in September. The UK construction PMI report for November is tipped to be 52, down from 53.1 in October. It will be posted at 9.am (UK time).
Canada’s jobs data will also be posted at 1.30pm (UK time). The employment change update reading is expected to show that 20,000 jobs were created in November, down from the 83,000 added in October. The unemployment rate is anticipated to hold steady at 8.9%. The US factory orders reading is tipped to show 0.8% growth, down from the 1.1% registered in September. It will be posted at 3pm (UK time).
EUR/USD – has been in an uptrend since the start of the month and while it holds above the 50-day moving average at 1.1810, the positive move should continue. The 1.2300 area might act as resistance. A break below 1.1602 should pave the way for further losses.
GBP/USD – since late September it has been in an uptrend and if the positive move continues, it could target 1.3515. A pullback might find support at 1.3200 or 1.3106, and a break through that metric should put 1.3000 on the radar.
EUR/GBP – it rebounded recently after two months of declines. If it holds above the 0.9000 mark, it might target 0.9157. A move back through 0.9000 could point to a continuation of the wider bearish trend. A break below 0.8864, should pave the way for 0.8800 to be tested.
USD/JPY – if it holds above the 103.65 area, it could target 105.37, the 100 day moving average. Should the broader bearish trend continue and if 103.65 is taken out, it might target 102.00