Stock markets in Europe and the US finished lower yesterday as it was a slightly negative end to a very bullish month.
In November, The Stoxx Europe 600 rallied 14%, its best monthly gain since records began. The FTSE 100 had its best month since 1989 and the Dow Jones posted its largest monthly gain since 1987.
The bullish moves seen in the past month were fuelled by positive reports from pharma companies that have made great strides in developing potential Covid-19 vaccines. Pfizer and BioNTech, AstraZeneca and Oxford University have made good progress. Yesterday, Moderna requested that the FDA give emergency approval for their drug because it is 94% effective. From a health point of view it was very encouraging but it failed to boost sentiment in stocks, probably because dealers were more than happy to bank some profits from the previous month’s gains.
Speaking of markets that have been on a good run recently. Bitcoin USD set a new record high yesterday. The cryptocurrency has basically received endorsements from payment companies like PayPal and Square recently and that has added credibility to the asset.
Oil slipped yesterday but keep in mind it hit an 8 month high recently. In the past two days, OPEC+ members had a discussion with respect to their output plans for January but no agreement was achieved. It is believed that the announcement will be made today. In May, OPEC+ cut production by 9.7 million barrels per day (bpd) as a way of boosting the price. In August the output was eased to a 7.7 million bpd cut and the original plan was to row back to a 5.7 million bpd cut in January. Some members of the group would like to maintain the existing output levels, while UAE and Kazakhstan are keen to increase supply.
Overnight, the Caixin survey of Chinese manufacturing was released and the reading came in at 54.9, and keep in mind the prior level was 53.6. The reading was the fastest rate of expansion in 10 years which underlines the recovery in China. Stocks in Asia are showing decent gains and European indices are set to recover.
The Reserve Bank of Australia (RBA) kept rates on hold at the record low of 0.1%, meeting forecasts. Philip Lowe, the RBA boss, said the bank would be happy to change its bond buying scheme in an effort to assist the labour market.
Between 8.15am (UK time) and 9.30am (UK time) the major economies of Europe will announce their latest manufacturing PMI reports. Spain, Italy, France, Germany and the UK reports will be posted and economists are expecting 50.5, 52, 49.1, 57.9 and 55.2 respectively.
The flash reading of eurozone CPI will be posted at 10am (UK time) and the update is expected to be -0.2%, up from -0.3% in October. The core reading is anticipated to remain at 0.2%.
Canadian GDP on a monthly basis is expected to 0.9%, and that would be a dip from the 1.2% posted in August. The update will be announced at 1.30pm (UK time).
The final reading of US manufacturing PMI is anticipated to hold steady at 57.7 and it will be posted at 2.45pm (UK time). Shortly afterwards the ISM manufacturing report will be posted and economists are expecting 58, which would be a fall from the 59.3 registered in October.
Jerome Powell, the head of the Federal Reserve, is due to testify on the CARES act before the Committee on Banking, Housing and Urban Affairs at 3pm (UK time). Mr Powell spoke in Capitol Hill yesterday and he stressed the importance of the lending facilities of the Fed and he also reiterated that the US central bank is ready to act should it be required. With that in mind, the central banker issued a mixed outlook on the US economy, stating it was dependent on the coronavirus, which is becoming more of an issue again. Steven Mnuchin, the Treasury Secretary, claimed that the unused funds from the various Fed lending facilities would be better served in the form of a stimulus package. It is likely that Mr Powell will issue a plea for Democrats and Republicans to reach a compromise with respect to a coronavirus relief package.
At 5pm (UK time), Christine Lagarde, the head of the ECB, will be speaking at 5pm (UK time). There has been chatter the ECB will ramp up their stimulus package later this month, so the announcement could see hints being dropped. Yesterday the euro flirted with the $1.2000 level, largely to do with the weak dollar. A strong euro is the last thing the ECB needs so Ms Lagarde has an incentive to try and talk down the currency.
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 0.9030, 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 105.47, the 100 day moving average. Should the broader bearish trend continue and if 103.65 is taken out, it might target 102.00