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Equity volatility remains low, OPEC+ in play

Equity volatility remains low, OPEC+ in play

Equity markets in Europe largely incurred small losses yesterday even though it was announced the UK regulator approved the Pfizer-BioNTech drug as a vaccine for Covid-19. 

It is understood that the first doses will be rolled out in a matter of days. In the past month there have been several leaps forward in the fight against the coronavirus which is fantastic, but dealers are mindful the mass vaccination process will take months. The S&P 500 managed to set yet another record close after it spent much of the session slightly in the red.

Yesterday, the FTSE 100 rallied over 1%, which on the face of it seems like the bullish move was driven by the vaccine news. The finer details show that mining, energy and banking stocks played a big role in the move. Consumer companies that have a relatively large exposure to international markets broadly rallied too because of the weaker pound. The FTSE 250 is considered to be a better representation of the UK economy, and the index only closed up 0.17%.

Oil rallied yesterday following the losses witnessed earlier in the week. OPEC+ has been in focus recently as there was a lot of chatter that the group will maintain the existing production cuts into next year rather than raise output. That was a factor in the recent eight month high that was seen in the energy market. The group of oil producing nations couldn’t decide and had to postpone their decision, which should be delivered today. It seems as if output will remain curtailed in some shape or form, hence the upward move yesterday. 

On Wednesday, we heard from a number of US central bankers. Patrick Harker cautioned there are signs the economy is plateauing and that was because of a lack of new fiscal stimulus. Jerome Powell, the Fed chair, reiterated the view that tools will be used until the economy has clearly turned a corner. The proposed coronavirus stimulus is back in focus but hopes are not too high at the moment. Nancy Pelosi and Chuck Schumer of the Democrats called upon Republican Mitch McConnell to back a bipartisan deal - $908 billion package – but McConnell isn’t keen on spending more than $500 million.  

Sterling suffered yesterday as dealers’ patience took a knock seeing as there is increased frustration with respect to the UK-EU trade talks. The UK’s fishing territory is at the forefront of the discussions. The lower move in the pound represented the concerns about striking a deal on time, but the CMC GBP index dropped its lowest level in over two weeks, which doesn’t really suggest that traders feel a no-deal scenario is on the cards.               

Overnight, the Caixin survey of Chinese services came in at 57.8, while economists were expecting 56.5. It was the fastest rate of expansion in five months. During the week the manufacturing report carried out by Caixin showed the fastest growth rate in 10 years. Equity markets in Asia are experiencing low volatility 

Between 8.15am (UK time) and 9.30am (UK time) the major economies of Europe will post their latest services PMI data. Spain, Italy, France, Germany and the UK are tipped to announce services readings of 36.6, 41.3, 38, 46.2 and 45.8 respectively. The services sector accounts for approximately 75% of British output so the UK reading will be closely watched.    

At 10am (UK time) the eurozone retail sales update will be posted and the consensus estimate for October is 0.8%, up from -2% posted in September. It is worth noting the German retail sales easily topped forecasts so we might see something similar with the eurozone update.

The US initial jobless claims reading will be posted at 1.30pm (UK time), and it is anticipated to fall from 778,000, to 775,000. Last week’s reading was a five week high. The continuing claims update is expected to be 5.91 million, which would be a drop from the 6.07 million registered in the previous week. Yesterday, the ADP employment report showed that 307,000 jobs were added. The October reading was revised upwards from 365,000 to 404,000, so there was a big drop between October and November.

The ISM non-manufacturing is anticipated to cool from 61.2 in October to 60.9 in November – the figures will be posted at 3pm (UK time). There are concerns the US’s economic rebound is running out of steam so traders will be paying close attention to the jobs and services data.        

EUR/USD – has been in an uptrend since the start of the month and while it holds above the 50-day moving average at 1.1796, the positive move should continue. 1.2140 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 1.3106, 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 105.47, the 100 day moving average. Should the broader bearish trend continue and if 103.65 is taken out, it might target 102.00

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