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Politics still in play

Politics dominated last week and it is likely to be prominent this week too. 

Most European equity markets finished on a positive note on Friday despite the continued standoff between Italy and the EU over the budget. Brussels said they would begin the disciplinary procedures against the Italian government, but no details have emerged. The fight centres on the fact that the Italian government wants to run a budget deficit of 2.4%. Matteo Salvini, the joint deputy prime minister is keen to increase public spending in a bid to boost economic growth. Mr Salvini, stated he is not ‘fixated’ on the size of the budget deficit as long as the economy grows, and this suggests he is open to negotiating, which might take some pressure off the Italian government bond market. Dealers are fearful about the Italian debt situation, and they are worried it could trigger a debt crisis in the region.  

Theresa May has a difficult task ahead of her as she has to sell the withdrawal agreement to her own party. The EU over the weekend made it very clear that it is a take it or leave it situation in relation to the deal. Prime Minister May will struggle to get fellow Conservatives to support her as many pro-Brexit and anit-Brexit MPs don’t like the deal she struck. There are questions about what would happen in the event of the deal being voted down – it would open up the possibility of a no-deal Brexit.    

Asian stock markets were largely higher overnight, and the Hang Seng was the standout performer. Traders are looking ahead to the G20 summit, which starts later this week, and the US-China meetings will be the focus of dealers’ attention.

According to Adobe Analytics, US Black Friday sales jumped by 23.6% to $6.22 billion – a record level. The company which tracks major retailers said over $2 billion was spent on smartphones on Black Friday – record sales for a single day. This may assist the share price of Apple, which has taken a beating recently. Retailers of tech goods will be in focus today as Cyber Monday kicks off, and Abode Analytics is predicting sales to be $7.8 billion.  

Oil plunged on again on Friday as traders are worried about oversupply. Saudi said that production will rise again, and that is amid rising oil stockpiles. Since the October peak, West Texas Intermediate and Brent Crude have dropped 34% and 32% respectively. OPEC are due to meet on 6 December, and there is a lot of talk about a co-ordinated production cut, but that clearly has supported prices so far.

Tensions are running high between Russia and Ukraine after the Russian navy opened fire and seized three Ukrainian ships in the Crimean peninsula yesterday. Relations between the two countries has been poor ever since Russia annexed Crimea in 2014. Whenever one or both countries are in the diplomatic spotlight, Evraz and Ferrexpo often come under pressure.

The German Ifo business climate report will be announced at 9am (UK time) and traders are expecting the reading to be 102.3, which would be a decline from the 102.8 reading in October. The report has been in decline for the past two months, and last week we saw disappointing services and manufacturing reports from Germany.

At 9.30am (UK time) the UK mortgage approvals will be released and, and economists are expecting 38,900, which would be an improvement on the 38,500 in September. In recent months the number of mortgage approvals has dipped, there are concerns the housing market is cooling, and uncertainty surrounding Brexit is a small factor too.   

EUR/USD – has been diving lower since late September and if it holds below the 1.1510/00 region, it could pave the way for the 1.1215 area to be retested. A move to the upside could run into resistance at 1.1548 – the 100-day moving average.

GBP/USD – has been broadly pushing lower since September and if the bearish move continues, it might target 1.2661. A break above 1.3000 might bring 1.3174 into play.

EUR/GBP – surged in mid-November and if the bullish trend continues it might 0.8939 or 0.9000. A drop below 0.8720 – 200-day moving average might bring 0.8700 into sight.

USD/JPY – the upward trend that began in March is still intact, and if the positive move continues it might target 114.73 Support might be found at 111.39. 

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