Stock markets in Europe finished on a bullish note yesterday, on the back of optimism that the UK and the EU are close to reaching a trade deal.
The UK-EU trade talks have been dragging on and on and patience has been running low. Yesterday afternoon there were reports that a deal was "imminent" and that boosted sentiment in European equity markets. The FTSE 100 underperformed versus its continental counterparts as the rally in the pound held it back, but the FTSE 250 rallied over 1.7% – outstripping the eurozone markets.
While the UK’s future relationship with the EU dominated the headlines yesterday, the health emergency continues to be a problem. A second strain of Covid-19 was identified in the UK and that could well pose a problem in weeks ahead. It's concerning that several countries have identified the new variant of the virus, but dealers were more interested in the UK-EU trade situation. Sterling rallied on the back of optimism surrounding UK-EU discussions and the CMC GBP Index outperformed. There has been talk in the last few hours that Prime Minister Johnson will make a speech at 11am (UK time) with regards to the trade situation – sterling is higher on deal optimism. One report even claimed that the EU will hold a press conference at 8am (UK time).
US equities were less volatile yesterday. The proposed $900bn coronavirus stimulus package was in focus as the House of Representatives and the Senate supported the scheme, but President Trump wasn’t so keen on the plan. It was believed that 'the Donald' wanted the stimulus programme to include a $2,000 payment, while the programme includes a $600 payment. It was reported that Nancy Pelosi, the Speaker of the House, was going to look to rework the stimulus package, but Republicans might not be in favour of such a payment. Last night, the S&P 500 finished fractionally higher and the Russell 2000 set a new record close.
The US posted numerous economic reports yesterday, with mixed results. The November reading of personal income was -1.1% and that was a sizeable fall from the -0.6% posted in October. Personal spending declined by 0.4%, versus the previous reading of 0.3%. The durable goods metric showed 0.9% but that was a big drop off form the 1.8% registered in October. The final reading of University of Michigan consumer sentiment for December was 80.7, while the October report was 76.9. It's encouraging to see that consumer confidence ticked up in the all-important busy shopping month.
The US initial jobless claims report fell to 803,000 from 892,000 – which was the highest level in nine weeks. A fall in the jobless rate is a step in the right direction, but keep in mind the lowest reading in November was 709,000.
Commodities had a positive run as the overall bullish mood in the markets helped copper, platinum, palladium, gold and oil. It's worth noting the sector lost ground earlier in the week and the dip in the dollar yesterday helped too.
Volatility is likely to be low today as the London Stock Exchange will close at 12.30pm. The French CAC 40 market will also operate a half day, while the German DAX remains closed. The US stock market shuts at 6pm (all UK times).
EUR/USD – has been in an uptrend since the start of November and while it holds above the 50-day moving average at 1.1928, the positive move should continue. The 1.2300 area might act as resistance. A pullback might find support at 1.1800.
GBP/USD – since late September it has been in an uptrend and if the positive move continues, it could target 1.3608. A pullback might find support at 1.3230, the-50-day moving average, and a break through that metric should put 1.3000 on the radar.
EUR/GBP – has been in an uptrend since late November and while it holds above the 200-day moving average at 0.8986, the positive move should continue. 0.9291 could act as resistance. A break below 0.8986 could put 0.8864 on the radar.
USD/JPY – is still in its wider downtrend and if the bearish move continues it could find support at 102.00. A rebound could encounter support at the 50-day moving average at 104.34.