05:53 GMT Monday December 21st 2015
European stocks look set for a weaker open on Monday, tracking the late sell-off in US markets on Friday as uncertainty surrounds the Spanish election results. Spain’s governing conservative party won but has lost its majority after losing seats to new parties Podemos and Ciudadanos, so must now form a coalition. The risk is that as part of a coalition, Rajoy will have to make concessions on economic policy at the expense of Spain’s burgeoning economic recovery.
Fund managers cut net S&P 500 longs in past week according to data from the CFTC in a demonstration of more caution than optimism following the Fed rate-rise. The positive implications for US growth by the Fed raising rates has given way to nerves surrounding slumping oil prices, falling Apple shares and China’s slowdown.
The performance of US stocks in the final two days of last week has put any lingering prospects of Santa rally to bed. Monday could now become a tipping point for the Dow Jones Industrial Average which is sitting on the threshold of two month lows and a possible double top pattern that could see the index cascade back towards 16,200.
The hope for further central bank stimulus has taken three major blows in December. Just as the Fed was officially putting an end to its era of extraordinary monetary policy, the ECB and the Bank of Japan both disappointed by easing policy less than expected
While central banks have damaged sentiment, the decline in shares of Apple and the energy sector are having a more direct and immediate impact. Numerous Apple suppliers including German chipmaker Dialog have issued profit warnings triggering speculation of weaker iPhone sales in the fourth quarter, sending Apple shares to the lowest since August.
Rebounding metal prices could be some support to the FTSE 100 as copper, gold and silver rallied at the tail end of last week, escaping new multi-year lows. The energy sector is mostly like to be a drag thanks to the persistently weak oil price.
The US dollar has firmed up in the wake of the Fed’s decision to finally raise rates. There is no significant US data release on Monday but Tuesday sees the final number for third-quarter GDP with durable goods orders, personal income and spending, and new home sales for the month of November reported later in the week.
German PPI, Eurozone and UK consumer confidence are the main data points of note for the euro and British pound, both of which are at critical levels of technical support.
EURUSD – The euro bounced off 1.08 on Friday, avoiding a bigger retracement of the 300+ pip rally on December 3. The bias is for a continuation of the move lower while below 1.09 but holiday period could see price retreat into a 1.08-1.10 trading range.
GBPUSD – The pound has paused at 1.50 after having made an 8-month low. A down-sloping trendline connecting the July 8 and September 4 lows could support a bounce back inside the channel / wedge pattern.
EURGBP – euro-pound has been choppy between 0.7 and 0.73 but has maintained its uptrend while above the 200 DMA which sits at 0.7210. While above 0.7240 there’s scope for a push through 0.73 towards 0.7375.
USDJPY – The massive one-day reversal from 123.50 down towards 121 should be bearish for prices but with some scope for retracement in the short term. The 200 DMA at 121.60 then 122.25 are resistance before the downtrend could resume.
Equity market calls
FTSE100: to open 42 points lower at 6,010
DAX: to open 54 points lower at 10,554
CAC40: to open 32 points lower at 4,593
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