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European stocks on course for their best month since January

European markets look to be on course for their best month since January after the gains of the last few weeks, on the growing anticipation that central banks are not only done on the rate hike front, but that we could start to rate cuts as soon as the early part of 2024.

The shift to bullish from bearish sentiment has also been reflected in the performance of US markets with the S&P500 also on course to post its best monthly performance since July 2022, with US 10-year yields on course for their biggest monthly decline since March.

The Nasdaq 100 has led the way with that index pushing above its July peak and above 16,000, as well as hitting its highest level since January 2022, driven mostly by the so co-called “Magnificent 7” stocks.  

While central bankers will do reluctant to countenance the idea of rate cuts in the next 6 to 12 months given it cuts against the “higher for longer” narrative they are so keen to push, the hawkish messaging jars slightly against a backdrop of a deteriorating economic outlook, particularly in Europe.

This messaging is expected to get a further airing this week when we have a host of central bankers set to jawbone the latest narrative about future policy pronouncement.

Starting today ECB President Lagarde is due to speak in Brussels, to EU lawmakers as well as tomorrow, although she won’t be alone in that with Uber hawk, German Bundesbank President Nagel set to speak in Cyprus earlier in the day.

It is no secret that a number of ECB policymakers continue to push the narrative that rates could go higher, only last week Belgian ECB member Pierre Wunsch argued that rates may have to rise again given that markets were starting to price in cuts next year. His Spanish counterpart Hernandez de Cos was also keen to rule out the likelihood of rate cuts, however the market simply isn’t buying into the narrative, given how quickly inflationary pressure is slowing across Europe, alongside the continued deterioration in the latest economic numbers.

Tomorrow, we have a host of Fed speakers due to speak on the slate with Fed governors Waller and Bowman, along with the Chicago Fed President Austan Goolsbee, ahead of this week’s latest revision to US Q3 GDP, with the resilience of these numbers speaking to the idea that any loosening of monetary policy remaining much further off than for the likes of the ECB and Bank of England.

It’s also shaping up to be the worst month for the US dollar since November last year in a sign that more declines could be on the way, as markets bet that the Fed is done on the rate hike front. If this trend continues and there’s little reason to suppose it won’t we could see a similar trend to last year play out when it comes to the greenback.

With US markets finishing higher for the 4th week in a row, in a shortened Thanksgiving session on Friday, markets in Europe look set for a lower open on the back of a softer Asia session, with attention expected to be on the upcoming OPEC+ meeting and the possibility of further output cuts which could be announced at the end of the week with oil prices anchored close to their lows of last week, and on course for their second successive monthly decline.

EUR/USD – currently finding resistance at the 1.0960 area, with the August peaks at 1.1060/70. We need to hold above the 1.0840 area to signal the prospect of further gains. We also have support at the 200-day SMA at 1.0810.

GBP/USD – having broken above the 1.2450 area and 200-day SMA we could well see an extension towards the 1.2720 area, which is 61.8% retracement of the 1.3140/1.2035 down move. Upside momentum remains intact while above 1.2450.

EUR/GBP – appears to be breaking down have slipped below 0.8720 last week we could see further weakness towards the 0.8620 area.

USD/JPY – seen a significant rebound from the lows last week at 147.15, with the current strength capped by the 150.00 area, with a break of 150.20 potentially retargeting the main resistance at the 151.95 area.


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