European markets underwent a sharp downward lurch yesterday, with the DAX closing lower for the fourth day in succession, as well as hitting a two-week low, although by contrast the FTSE100 appears to have found a bit of a base, posting a modest gain for the second day this week.
The price action of the past two days has been particularly fickle, with tech stocks feeling the biggest downdraught as surging US yields, and the prospect of tighter coronavirus restrictions in Europe, weighing on economic activity through December, knocked some of the stuffing out of investor confidence.
This lack of confidence could also be reflected later this morning in the latest German IFO business climate survey which could see a further softening in November to 96.7, from 97.7 in October, although the survey may well be outdated already given the events of the last few days.
When the German health minister feels compelled to say in public that by the end of this winter everyone in Germany will either be vaccinated, recovered, or dead, it isn’t generally conducive to a positive business environment, which means the December IFO survey could well see a deterioration even if today’s number is better.
The weaker tech theme continued in US trading with the Nasdaq sliding back, even as the Dow closed higher, and the S&P500 finished the day flat. This rally off the lows could well see markets here in Europe open higher later this morning.
Asia markets have also been mixed, with the Nikkei lower, while the RBNZ raised its headline rate by 0.25% to 0.75% as widely expected.
With the US absent on Thursday for the Thanksgiving holiday, today will see a tsunami of economic announcements, as well as positioning tidying ahead of the weekend, culminating in the release of the latest Fed minutes.
While the minutes aren’t likely to deliver too much in the way of surprises they could act as a decent insight into the deliberations of the FOMC into the decision-making process when it came to deciding the amount of the initial taper. While the initial reduction of asset purchases was widely expected, an initial monthly reduction of $10bn in Treasuries, and $5bn in mortgage-backed securities, it will be interesting to find out how many FOMC members wanted to go faster.
This will be especially pertinent given how the committee was evenly split on raising rates next year, when it last met. We already know that there a number of Fed officials who are uneasy at the pace of price rises, and there does appear to be significant disagreement about how persistent some of these price pressures are. Today’s minutes could show where these divisions are, with today’s economic numbers giving added fuel to the argument for a faster taper when the Fed meets next month.
Before that we get to see the latest revision of US Q3 GDP which is expected to see a modest upward adjustment to 2.2%, from 2%.
The recent headline CPI and PPI numbers also weren’t good news for the Federal Reserve’s transitory inflation narrative, which they used to justify their decision to start slowing their bond buying program. There are increasingly strident voices urging the central bank to taper faster than the current $15bn a month which started this month. If today’s core PCE similarly surge to 31-year highs in the same way that the recent headline CPI numbers did earlier this month we can expect these voices to get louder.
In September the PCE Deflator hit a 30 year high of 4.4%, and is expected to move above 5% in October, while the core deflator pushed up to 3.6%, and is expected to edge even higher above 4%, and levels last seen in 1990.
The recent better than expected retail sales figures for October should translate into a similarly positive uplift to today’s personal spending numbers which are expected to show a rise of 1%, while personal income is expected to recover from a 1% decline in September, with a 0.2% uplift.
Weekly jobless claims are expected to come down to 260k from 268k.
EURUSD – continues to sink in the face of a resurgent US dollar and looks on course for a test of the June 2020 lows and the 1.1160/70 area. For the downside pressure to diminish we would need to see a push back above the 1.1400 area.
GBPUSD – made a marginal new low at 1.3342 keeping the risk of further losses towards the 1,3160 level. We need to gain a foothold above the 1.3500 area and kick on through the 1.3520 area to open up the 1.3600 area.
EURGBP – pulled off the 0.8380 area squeezing back to the 0.8430 area before slipping back. A move through 0.8440 targets the 0.8480 area. The bias remains for a move towards the 0.8280 area. Only a move through the 0.8470 area opens a move back towards the 200-day MA and the 0.8580 area.
USDJPY – triggered stops through 115.00 but haven’t broken above the 115,20 area yet. A move through the 115.20 area targets a potential move towards the 116.00 level. Pullbacks currently have support at the lows last week at 113.60.
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