Stocks in the UK and Europe look set for a weaker start on Friday as markets eye a weak oil price and the Chinese yuan at four-and-a-half year lows ahead of German inflation, Italian industrial production and US retail sales data later.

OPEC’s monthly report published on Thursday forecasted a fall in non-OPEC oil supply next year coupled with an increase in global demand that should help support the price. The market’s focus however was more on the short term fact that oil production from OPEC itself during November reached the highest in three years.

The near-term outlook for the stock market looks a lot less rosy while oil prices are tanking. Oil prices fell 40% after OPEC’s meeting in November last year, a similar decline this time would mean Brent crude at $25 per barrel. An additional cause for concern over the drop in crude this time is that it may cause a policy error by the Federal Reserve. The Fed looks set to raise interest rates at a time when a fall in the oil prices means inflation could be about to take another leg lower. The Bank of England just highlighted exactly this same risk factor in its meeting minutes.

The euro has for the moment stalled at the 1.10 handle versus the dollar and 0.72 versus the pound. German inflation data today at 9am GMT is expected to show Harmonised CPI for November remained at 0.3% y/y. German ‘lowflation’ is likely to reinforce why the ECB felt compelled to act at its December meeting but leave some powder dry for a rainier day. Some more insight on ECB policy measures could come from Benoit Coeure who meets with Erkki Liikanen in Finland at 11am GMT.

The US retail sales report released at 1.30pm GMT is the penultimate piece of data that could derail a Fed rate hike with CPI released next week. Expectations are for a rise of 0.2% in November up from 0.1% in October with sales ex-autos to rise 0.3%, up from 0.2%.


EURUSD – Having closed past the 1.10 handle on Wednesday, the euro closed back beneath it on Thursday. The short-term trend is higher supported by 1.08, Monday’s low with 1.11 potential resistance from the Sept 3 and 23 lows. 

GBPUSD – Sterling paused at 1.52 on Thursday after jumping to make a new higher high the previous day. The break of the December 3 peak suggest further upside towards 1.53 with the possibility of a dip towards 1.5060, the Dec 8 high.

EURGBP – Euro-sterling dropped back to successfully re-test the broken 200 DMA. While above 0.7160, the December 7 low there is continued scope for a move to 0.74.

USDJPY – Having collapsed back through 122.25 and the 200 DMA, USD/JPY could be set for a drop back to 120 with the aforementioned supports turned possible resistance.


Equity market calls

FTSE100: to open 21 points lower at 6,067

DAX: to open 8 points lower at 10,590

CAC40: to open 9 points lower at 4,626


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