US markets continued to go from strength to strength yesterday, finishing the month of November by once again seeing new record highs for the Dow and S&P500, boosted by rising expectations that we’ll see a tax reform bill passed in the coming days.
Expectations of a deal gathered pace after highly respected Republican senator John McCain said he would support the bill. Despite this boost Republicans took the decision to delay the vote suggesting that there were still problems in getting the necessary votes. The delay for now doesn’t appear to have impacted sentiment but that could change if the bill fails to get the required votes, when senators reconvene today.
Over in Europe the mood is much less exuberant despite economic data which continues to surprise to the upside. While the DAX was able to make a record high at the beginning of November, the performance of European stocks since then has been nothing short of disappointing.
The weakness of the US dollar, against a strengthening euro and pound appears to have acted as a drag on markets across Europe.
As we come to the end of 2017 attention will inevitably turn to the prospect that we might see some form of rebound in what is traditionally known as a “Santa rally”.
While it is true that stocks do have a tendency to rally into the end of the year, this year may well be different, particularly where Europe is concerned, given how good a year for stocks this has been already.
Oil prices also finished another positive month slightly firmer after OPEC members agreed to replace the current deal on quotas with a new one, which lasts for the whole of 2018, though it will get reviewed in June 2018, at the request of Russia.
It seems that Saudi Arabia and Russia have put aside concerns that the cuts might leave the field open to US shale producers who are already pumping at record levels, to plug any gaps, thus potentially stealing market share and in the process help push prices back down.
On the data front we have a data heavy day with the latest manufacturing PMI’s for November from around the globe.
Starting with Japan and China earlier this morning we saw positive readings for both, but they were both down on the October readings raising the prospect that we could be starting to see the beginnings of a possible end of year slowdown. Japan came in at 53.6, down from 53.8 while the latest Caixin manufacturing PMI from China slipped to 50.8, from 51.2, its weakest reading in five months.
Last month we saw very positive readings from across all of the big EU economies with Spain and Italy joining France and Germany by posting solidly strong readings for October, pointing to an extremely strong end of the year.
The Spanish readings were all the more surprising given events in Catalonia, and expectations are for an increase to 56.6 from 55.8. Italy is expected to improve to 58.4 from 57.8, while France and Germany are expected to return strong expansions of 57.5 and 62.5 respectively.
The pound had a solid month in November, holding on to and in some cases improving on its October gains, buoyed by a rate rise as well as fairly decent economic data, along with rising optimism that progress on the Brexit negotiations will continue to move forward.
Recent data has shown that manufacturing order books are at multi year highs while manufacturing PMI’s have also proved to be fairly robust. Today’s November manufacturing PMI is expected to show an improvement to 56.6 from 56.3, which would be the sixteenth consecutive month of expansion.
The UK domestic market has proven to be somewhat of a bright spot for the sector, and while there are concerns about rising input prices the outlook has thus far shown no signs of slowing down, though it will be interesting to note if the recent Bank of England rate rise has dented confidence in any way.
We finish off with the latest US manufacturing PMI and ISM numbers which are also expected to be similarly positive.
EURUSD – yesterday’s move back through 1.1900 brings the 1.1965 peaks back into focus with the 1.2000 level behind that. Wes still have solid support down near the lows this week at 1.1810.
GBPUSD – looks set for a retest of the 1.3580 area with resistance beyond that at 1.3660, the September highs. Dips should find support at the 1.3430 area and 1.3320.
EURGBP – tested below the 200 day MA but needs to take out the November lows at 0.8735 to suggest the possibility of further losses towards 0.8600. We need to recover back through the 0.8820 level to argue for a return to the 0.8900 area.
USDJPY – continues to push higher with the 112.80 level and 50 day MA the next resistance level. A break above 113.20 argues for a move back to 114.00. Support comes in at the 111.60 area.
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