It seems that traders are winding down for Christmas as volatility in the markets was low yesterday.
The bulk of European equity markets finished in the red, but the FTSE 100 managed to close fractionally higher - thanks to a slide in the pound. The FTSE 250, like Continental equity benchmarks closed lower.
The major headlines in the past few days have been Brexit related. There is a fear the UK could end up leaving the trading bloc without a deal, and that has encouraged some traders to lock-in profits on stocks as well as the pound. Declines in equites and sterling must be put in context with the gains that were racked up recently.
Not long ago the Stoxx 600 hit a record hit, and the pound was at a seven month high versus the US dollar, and a three year high against the euro. The possibility of a no-deal Brexit seems to low, and even if the event happens, it is over one year away. If dealers were genuinely fearful of a no-deal, stocks as well as the pound would probably be enduring much larger losses. During the day yesterday, the S&P 500 hit yet another record-high, but bullish sentiment ran out as it finished slightly in the red.
Socks in Asia are showing modest losses across the board. The Bank of Japan kept monetary policy on hold, but the central bank cautioned the cooling of the global economy is likely to have a limited impact on the domestic economy.
The House of Representatives voted to impeach President Trump. The process will now pass to the Senate, and 67 of the 100 lawmakers in that chamber will need to vote in favour of impeachment in order to remove him from office. Given that Republicans hold the majority in the Senate, he is unlikely to be removed from the job.
WTI plus Brent crude crept higher yesterday and hit fresh three month highs. The energy market is still riding the wave of positivity from the US-China trade deal. The Energy information Administration inventory reports showed that oil stockpiles grew by just over 1 million barrels, while gasoline inventories rose by 2.52 million barrels. Both reports were broadly in line with expectations.
The Canadian dollar rallied yesterday on the back of the strong inflation report. The headline Canadian CPI rate jumped to 2.2%, from 1.9%, but underlying demand might not be that strong as the core CPI level held steady at 1.9%.
At 9.30am (UK time) the UK retail sales report will be published, and economists are expecting 0.3%, which would be a sharp rebound from the 0.3% decline in October.
The Bank of England (BoE) will announce its interest rate decision at 12pm (UK time). The consensus estimate is that monetary policy will be kept on hold. At the previous interest rate meeting, two members voted to cut rates, and economists are predicting that two policymakers will vote for rate cuts again. Earlier this week the flash manufacturing and services PMI reports came in at 47.4 and 49 respectively, so it is clear the sectors are struggling. On the other side of the coin, the jobless rate is on par with the 1975 level, and average earnings are 2% above CPI, so workers are getting a decent increase in real wages. The BoE are unlikely to move rates until the Brexit saga ends, and given the recent chatter about a no-deal scenario after the transition period, the central bank are likely hold steady for the foreseeable future.
The US jobless claims report is expected to come in at 225,000, which would be a big drop from the 252,000 reported last week. The Philly Fed reading is tipped to drop to 8 from 10.4 in November. The reports will be released at 1.30pm (UK time).
At 3pm (UK time), the US existing home sales report will be posted and the consensus estimate is 5.44 million, which would be a slight dip from the 5.46 million posted in October. The latest building permits and housing starts figures hit 12 year highs so the housing market is in good health.
EUR/USD – has been pushing higher since late November and while it holds above the 100-day moving average at 1.1064 it might retest 1.1179. A move to the downside might target the 1.1000 area.
GBP/USD – has retreated sharply from the seven month high and if the bearish move continues it might target the 1.3012 – 1.2900 zone. If the wider positive trend continues it could retarget 1.3200.
EUR/GBP – has rebounded from a three year low, and if that bounce back continues it might target 0.8600. Should the wider bearish trend continue it might retest 0.8400.
USD/JPY – while it holds above the 50-day moving average at 108.64 it could target 110.00. A move back below the 50-day moving average might bring 107.82 into play.