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Equity sentiment slips, Opec+ in focus

Equity sentiment slips, Opec+ in focus

Equity markets had a positive run last week on the back of more progress being made with respect to developing a Covid-19 vaccine. In addition, traders are optimistic that President Trump will leave office quietly in January.

The main story of the week was that the drug being developed by AstraZeneca and Oxford University has an average effective rate of 70%, and it can be transported at -3 degrees, which makes it more attractive from a manufacturing and distribution point of view. The medication also costs far less than other drugs being developed by Moderna and Pfizer-BioNtech.

We are not out of the woods yet with respect to the coronavirus crisis, but in the last few weeks there have been several major headlines with respect to significant progress being made in the development of a vaccine. The health emergency is still a massive problem and this has been highlighted by the extension of restrictions in Germany and France. England’s lockdown ends this week, but in light of the fact the nation will enter a tiered restrictions system, it’s as if the lockdown won't end for much of the country. If there is an absence of positive news from the pharma sector we might see stocks drift lower, but even if we do, we probably won’t see aggressive selling for fear there will be further breakthroughs on the vaccine front.

In the immediate aftermath of the US election, when it was looking likely that Joe Biden won, there were concerns that President Trump would go down the route of contesting certain results and that could lead to lengthy legal cases. Mr Trump has still yet to concede that he lost, but at the back end of last week he said that if the electoral college recognises the Biden victory at its meeting in mid-December, he will accept its decision. At the weekend President Trump questioned whether the Supreme Court would hear his case about the allegations of voter fraud. A recount of votes in Wisconsin’s two largest counties declared that Biden won by a larger margin than initially thought. It was reported that Mr Biden is lining up Janet Yellen, the former Fed chair, to be treasury secretary. Dealers reacted well to this news, as Yellen is considered to be a safe pair of hands. 

Opec+ will be in focus today as the group has to make a decision with respect to production plans for January. Yesterday there was an informal online meeting of the oil producers, and there is division with respect to future output plans. Russia, along with others, are keen to maintain the current output plans in place. Kazakhstan and the UAE on the other hand are eager to raise output, as was originally planned. The nations need to reach a deal otherwise at the start of the new year output will be increased by 2 million barrels per day.

Iran is likely to remain in the news in the near term as Mohsen Fakhrizadeh – a top nuclear scientist – was killed. No organisation has yet claimed responsibility for the attack. The move is likely to bring about higher tensions in the region

China posted well-received data overnight. The manufacturing PMI reading increased from 51.4 in October to 52.1 in November – its fastest of rate of expansion in three years. The services PMI reading was 56.4, and that exceeded the 56 consensus estimate, and was the largest level of growth since 2012. Stocks in mainland China are up, but equities in Hong Kong and Japan are in the red and European markets are tipped to open lower.

Gold took a knock last week as dealers were keen to dump the metal as it's deemed to be lower risk, and buy up higher-risk assets, like stocks. On Friday, the commodity closed below its 200-day moving average for the first time since January.        

In over four weeks the UK will exit its transition period with the EU and a deal has yet to be reached. Talks will be in focus this week as both sides have yet to broker an agreement. Dominic Raab, the UK’s foreign secretary, is optimistic that a compromise with be made in relation to fishing, on the basis that a lot of progress has been made elsewhere.   

The flash reading of Spanish CPI for November is tipped to rise from -0.9% to -0.8%. It will be posted at 8am (UK time). At 9.30am (UK time) UK mortgage approvals and mortgage lending are expected to be 84,486 and £4.45bn respectively. The Bank of England consumer credit reading for October is anticipated to be £500m, which would be a big difference from the -£622m registered in September.

The preliminary reading of Italian CPI is expected to be -0.5%, and that would an improvement from the 0.6% posted last month. It will be announced at 10am (UK time). Germany’s CPI rate is anticipated to hold steady at -0.5% and is announced at 1pm (UK time). The Chicago PMI reading is predicted to dip from 61.1 in October to 59 in November. The update will be announced at 2.45pm (UK time). Shortly afterwards, US pending homes sales will be posted, and it is expected to show an increase of 1% in October.             

EUR/USD – has been in an uptrend since the start of the month and while it holds above the 50-day moving average at 1.1781, the positive move should continue. 1.2000 might act as resistance. A break below 1.1602 should pave the way for further losses.     

GBP/USD – since late September it has been in an uptrend and if the positive move continues, it could target 1.3515. A pullback might find support at 1.3106, and a break through that metric should put 1.3000 on the radar.   

EUR/GBP – it rebounded last week after two months of declines. A retaking of 0.9000, might bring 0.9039, the 50-day moving average, into play. A failure to move above 0.9000 could point to a continuation of the wider bearish trend. A break below 0.8864, should pave the way for 0.8800 to be tested. If 0.9000 is retaken

USD/JPY – if it holds above the 103.65 area, it could target 105.52, the 100 day moving average. Should the broader bearish trend continue and if 103.65 is taken out, it might target 102.00