It was another solid session for markets in Europe yesterday with the FTSE100 making a fresh 20 month high, and the Stoxx600 and German DAX setting new record peaks, as European stocks shrugged off Wednesday’s US CPI shock.
US markets, on the other hand, had a much more mixed session with the Nasdaq rebounding quite nicely, as did the Russell 2000, while the S&P500 and Dow struggled, while US bond markets were closed due to Veterans Day. As we look ahead to this mornings open we look set to hold onto those gains, after a strong Asia session that saw Chinese markets rally after record sales in their own version of Black Friday, called Singles Day.
This week’s events, particularly around inflation are fomenting increasing discussion as to whether central banks might have to shift their policy stance to reflect that the price rises currently being seen could only just be the beginning of what consumers are about to bear as we head towards 2022.
For months they have been assuring the markets that inflation is transitory, only for them to then have to shift their CPI forecasts higher with each passing meeting.
One element has shifted in the past few days is that rate rise expectations have shifted much more towards the Federal Reserve, hence the sharp move higher being seen in the US dollar, which hit its best levels against a basket of currencies since July 2020, and looks set to go higher
With headline CPI at a 31-year high and set to go higher the markets appear to be pricing in the prospect of two US rate rises by the end of next year, a stark shift from where we were only two months ago.
As we come to the end of the week it’s been a solid week for European stocks with the FTSE100 getting to within touching distance of the 7,400 level, and its third successive weekly gain.
It’s also shaping up to be a positive week for the DAX although the progress has been glacial, with the only data of note today is once again out of the US, with the latest JOLTS job openings data for September, and Michigan consumer confidence for November.
There was a widespread expectation that September might well provide a big uplift in US payrolls, on the back of the roll-off of various government stimulus measures. While that number was eventually upgraded to 312k from 194k the weak nature of the number suggests that job openings may well have gone up. In August job openings fell to 10.44m from 11.1m, however the lack of a payroll advance in the September numbers suggests that vacancies may well have increased.
Expectations are for a fall to just over 10m, however it wouldn’t be a surprise to see a move in the other direction, higher given the lacklustre employment reports during that month.
Michigan consumer confidence is expected to improve slightly to 72.5, from 71.7, with forward inflation expectations expected to see a rise towards 5% from 4.8%
EURUSD – on course for the 1.1400 area having broken below the 1.1500 area. We have the potential for a move towards 1.1170, now 1.1500 has given way. We still have resistance at the 1.1620 area, which we need to overcome to stabilise.
GBPUSD – now below 1.3400 and the lowest levels this year, the risk is now for a move towards 1.3160. We need to get back above 1.3420 to stabilize and retarget 1.3600.
EURGBP – continues to find resistance at the 200-day MA and the 0.8580 area. A break below 0.8520 opens the 0.8470 area.
USDJPY – all set for a return to the previous highs at 114.75, on a break above the 114.20 area. While below the 114.20 area the risk is for a move back to the 113.80 area.