European stock markets closed higher yesterday, with sentiment broadly bullish, as the FTSE 100 gained the most ground among major indices.
The UK market closed up 1.7%, while the DAX 30 finished fractionally higher and CAC 40 posted a gain of almost 0.7%. Yesterday marked the first day of the Oxford University-AstraZeneca vaccine being distributed in the UK, and sentiment was also helped by the recent news about the UK-EU trade deal and the $900 billion US stimulus package.
The slide in the pound helped the FTSE 100 outstrip its eurozone equivalents. In addition to that, mining stocks played a large factor in the upward move, on the back of a rally in the underlying metals.
Towards the end of the session the bullish mood faded a little, as lockdown fears resurfaced. Germany’s lockdown was extended until the end of January. It was also announced that Scotland would be entering a lockdown, and it was reported that the UK prime minister, Boris Johnson, would be making a statement at 8pm – dealers took that as a sign that tougher restrictions for England were on the way. Mr Johnson confirmed that England will go into lockdown, and it looks as if it will be in place until mid-February or possibly March. Italy has widened its list of restrictions, with a lockdown until the middle of January.
US equities saw a lot of volatility yesterday as the S&P 500 and Dow Jones set new intraday records in early trading, but a few hours into the session the markets sold off, shedding over 1%. Loretta Mester of the US Federal Reserve said that the policy will remain very accommodative for quite some time. In addition to that, the central banker said the US economy will slow down in the next two months and then the outlook will be more positive. The state of Georgia will be in focus because of a dual Senate race and the outcome will determine whether Republicans or Democrats control the upper house. The Democrats already control the lower house by a slim majority.
Overnight, shares in China Telecom, China Mobile and China Unicom rallied after the NYSE announced it would no longer delist the companies. That should help US-China relations. Trading in Asia is mixed and European markets are being called lower.
The US dollar index endured a relatively large loss for much of the session, falling to a level last seen in April 2018. Lately there have been some concerns that the US’s economic recovery is running out of steam. Friday's jobs report will be closely watched as it will give us a good indication of the strength of the labour market. The greenback managed to recoup much of the losses it incurred during the day. It seems the dollar benefited from the flight-to-quality play when US stocks suffered.
Sterling had a great run in late December on the back of the UK-EU trade deal being reached and subsequently approved by both sides. Yesterday was a different story as dealers booked profit and the CMC GBP Index dropped by over 1%. Worries about tougher restrictions in the UK weighed on the pound too.
Gold enjoyed a rally yesterday, managing to hang on to its gains despite the recovery in the greenback. The yellow metal hit its highest level since early November. Silver and copper also enjoyed a rally. Platinum and palladium saw a lot of volatility yesterday as the metals racked up impressive gains during the day but then sentiment turned in the afternoon.
Oil was also volatile amid the Opec+ meeting. The group of oil producing nations were discussing output levels for February but no agreement was reached and the talks will continue today. There was chatter that the existing output levels will remain in place. It was reported that Russia is keen to raise output but Saudi Arabia is not keen on such a move.
Over the weekend, bitcoin set a new record by trading above $34,000. Yesterday it had a bit of a rollercoaster session as it fell below $31,000 and then in the afternoon it retook that level. Ethereum also had a massive trading range.
German retail sales are posted at 7am (UK time), with economists expecting the reading to be -2%, which would be a huge fall from the 2.6% posted in October. The German unemployment rate (8.55am, UK time) for December is tipped to hold steady at 6.1%. The unemployment change metric is expected to increase by 10,000, and that would be a big difference from the -39,000 registered in November. The US ISM manufacturing report (3pm, UK time) is tipped to slip from 57.5 in November to 56.5 in December.
EUR/USD – has been in an uptrend since the start of November and while it holds above the 50-day moving average at 1.1982, the positive move should continue. Resistance might be encountered at 1.2480. A move lower could see it target 1.2129.
GBP/USD – since late September it has been in an uptrend and yesterday it hit a 32 month high. If the positive move continues, it could target 1.3798. A pullback might find support in the 1.3500 area. A further pullback could target 1.3298, the 50-day moving average.
EUR/GBP – has been in a downtrend since mid-December and further losses might target 0.8864. Yesterday’s candle was bullish and if it holds above 0.9000, it could put the 0.9100 area on the radar.
USD/JPY – is still in its wider downtrend and if the bearish move continues it could find support at 102.00. The long wick on yesterday’s candle denotes indecision and a rebound could encounter resistance at the 50-day moving average at 104.13.