Last week was another strong week for global stock markets, driven by optimism over a possible vaccine for coronavirus and the increasing prospect that the US election is likely to be more conclusive than was originally thought.
The ever-increasing number of votes for Joe Biden, now counting at well over 78m, has also helped further undermine the already tenuous claims by President Trump that the election has been rigged against him. These two factors helped drive the S&P 500 to post a new record close, at the end of a week that also saw some European markets put in some of their best weekly gains since May, and the Nikkei 225 to close at its best levels in nearly 30 years.
These gains have come about despite a worsening backdrop of rising infection and hospitalisation rates for coronavirus, not only across Europe, but in the US as well. This appears to be because financial markets are now starting to look beyond the economic impacts of the current state of lockdowns, and towards the prospect of what comes next, in terms of an economic rebound which would go hand in hand with a vaccine rollout plan.
Of course, this change of emphasis relies on there being no setbacks to the vaccine timetable set out by BioNTech CEO Ugur Sahin in comments at the weekend, when he said that a return to normal could come by this time next year. For now, the optimism of last week appears to be rolling into this week, with markets in Asia seeing another positive session, helped by the weekend news of a signing of a new Asia Pacific trade deal, and the latest China data.
The signing of a new trade deal between 15 Asia Pacific nations, called the Regional Comprehensive Economic Partnership (RCEP) is welcome news, marking the first ever trade partnership between China, Japan and South Korea, along with the rolling up of a host of minor arrangements between 12 other Asia Pacific nations, including Australia, Singapore, Thailand and Vietnam. It is estimated that the rolling up of these various mini deals into one big deal could well lessen trade friction significantly, and help offer a significant boost to Asia GDP in the years ahead.
Today’s latest economic data from China was also welcomed as further evidence that the Chinese economy is continuing its slow recovery from its February lockdown malaise. The latest October retail sales numbers have continued the slow move back into positive territory that began in August with a 0.5% gain, and was followed in September by a rise of 3.3%. Today’s October number of 4.3% while lower than expected was nonetheless helped in no small part by the Golden Week holiday at the beginning of the month, and augurs well for a strong end to the year, with Singles Day in November likely to also offer a significant boost when the November numbers are released next month.
Industrial production also continued to perform well, maintaining the levels we saw in September, of 6.9%, and which are now back at the levels we saw at the end of last year.
The positive Asia tone generated by the news over the RCEP trade deal looks set to prevail into the start of European trade later this morning, as the new week picks up where last week left off. Brexit talks also look set to continue beyond the end of this week, with the same fault lines of fishing and level playing field provision the main obstacles to progress. It now seems likely that the deadline for the talks to end this week is likely to get pushed out further with a new deadline of 10 December being talked about.
Any thoughts that the departure of Dominic Cummings as prime minister Boris Johnson’s chief advisor might prompt a softening of the UK’s line don’t appear to be being borne out in the latest briefings, which means that a deal thus far remains as elusive as ever. The news that Boris Johnson is having to self-isolate as a result of coming into contact with a someone who has tested positive for Covid-19 is also a setback to his plans to reset the governments agenda in the wake of last week’s turbulent events inside number 10. It also evokes unwelcome memories of his own brush with the virus back in April, and is a reminder if any were needed, of the uncertainties around the virus.
EUR/USD – last Monday’s key day reversal still keeps the pressure on the downside, while below 1.1900, and support at the 50-day MA, near the 1.1750 level. A move below this level opens up a return to the 1.1680 level, and then the lows this month at 1.1600.
GBP/USD – has started to slip back after failing above the 1.3300 area last week. The next key support lies near the 1.3070 area. If we break below here, we could see a move back to the 1.2980 area and 50-day MA. The major support area remains down near the 1.2850 area and the lows this month.
EUR/GBP – found support at the 0.8860 area last week, and rebounded strongly back towards the 0.9000 area. We need to move up beyond the 0.9020 area to stabilise and signal a retest of the 0.9080 area and 50-day MA.
USD/JPY – the failure to move through the cloud resistance at the 105.60 level last week has seen the US dollar slide back. The next key support comes in at the 104.20 area, with a break below 104.00 retargeting the lows this month.