European and US stock markets had a bullish session yesterday. 

The Italian banking sector soared on reports that the administration in Rome is considering running a smaller than planned budget deficit. The coalition government originally planned to have a budget deficit of 2.4%, and now the chatter is they are considering a deficit of 2-2.1%. Investors welcomed the news as it took pressure off Italian government bond yields, and in turn it helped the banking sector. The move may well be a scheme by the Italian government to keep a lid on bond yields. Time will tell whether it is a ploy or not, but for the time being investors are more confident in the Italian and eurozone banking system.

We heard from Mario Draghi, the head of the European Central Bank (ECB), yesterday, and the central banker cautioned that growth is losing momentum. Mr Draghi also stated significant monetary stimulus is still required, and he anticipates inflationary pressure to cool due to the decline in the oil market. These slightly dovish comments also acted as a support mechanism for eurozone equity markets. In the summer the ECB was pushing the line that rates will remain on hold until at least the back end of 2019, and now with the way things are going we might not see a hike in 2019.

Stock markets in Asia overnight were broadly a little higher despite the warnings from President Trump that customers could face a 10% tariff on iPhones and laptops imported from China. Mr Trump also threatened to drive up the tariff rate on $200 billion worth of Chinese imports to 25%, from 10%, and he warned about imposing additional tariffs too. This could just be bluster ahead of the G20 summit, but Trump is unknown to be unpredictable.  

US retailers had a good run yesterday thanks to Black Friday and Cyber Monday. Retailers have had to become more aggressive in order to woe shoppers lately, and customers clearly have an appetite as a record was set for Black Friday, and there is chatter that Cyber Monday set a record too. Amazon, Best Buy and Wal-Mart were in demand yesterday as shoppers stocked up ahead of Christmas.

Richard Clarida, Federal Reserve deputy chairman, will be speaking in New York at 1.30pm (UK time). The central banker grabbed traders attention recently when he claimed the Fed might be closer to the neutral rate than people think, and traders viewed that as a sign the US central bank might hike rates at a slower pace that originally thought. The Conference Board consumer confidence report will be released at 3pm (UK time) and the consensus estimate is 135.9.

There wasn’t much support for Theresa May’s deal yesterday in the House of Commons debate and the Prime Minister will have a tough time convincing allies and opponents alike to back the deal. Some MPs might view it as the least bad option, and the prospect of a no-deal could frighten some politicians. Sterling didn’t have much of a reaction to the debate. The CBI realised sales report will be announced at 11am (UK time) and traders are expecting a reading of 10.   

Oil bounced back yesterday after suffering a major loss on Friday. The move to the upside yesterday still pales in comparison to recent losses, and the overall environment is still weak. Output from Saudi Arabia topped 11 million barrels per day – an all-time high. US inventories have been rising too. OPEC are set to meet in early December, and there is talk a production cut will be announced, but Saudi Arabia are under pressure from President Trump to keep prices low, so the Kingdom might not play ball with the rest of the group.

EUR/USD – has been diving lower since late September and if it holds below the 1.1510/00 region, it could pave the way for the 1.1215 area to be retested. A move to the upside could run into resistance at 1.1548 – the 100-day moving average.

GBP/USD – has been broadly pushing lower since September and if the bearish move continues, it might target 1.2661. A break above 1.3000 might bring 1.3174 into play.

EUR/GBP – surged in mid-November and if the bullish trend continues it might target 0.8939 or 0.9000. A drop below 0.8720 – 200-day moving average might bring 0.8700 into sight.

USD/JPY – the upward trend that began in March is still intact, and if the positive move continues it might target 114.73. Support might be found at 111.39. 

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