Despite a modest weekly loss, November was the third successive monthly gain for global stock markets, with US markets putting in their best performance since June. Contrast that to where we were twelve months ago and the difference couldn’t be starker, with equity markets all a lot higher now than we were then.
Back then, we were in the midst of concerns that the Federal Reserve was midway through an aggressive tightening cycle, the European Central Bank was ending its asset purchase program, against a backdrop of a slowing global economy. This in turn was putting stock markets under pressure, while US ten-year yields were well above 3%, against a back drop of a US, China trade dispute, which, as it turns out, was only starting to escalate further.
Twelve months on and stock markets are not only higher, the only changing variable is that central banks have gone full reverse ferret in terms of their policy settings, though there is some evidence that economic activity could well be starting to show signs of picking up, and there is cautious optimism about the prospect of some form of phase one trade deal between the US and China.
Some parts of that previous sentence could well have been lifted from my commentary twelve months ago, only expectations then were a little bit higher about the prospects of a deal. In any case we’ll see in just under two weeks’ time, whether or not there is a deal, or whether we get another deferral of tariffs. This may not be enough, according to the Global Times, which can act as a mouthpiece of the Chinese administration, suggested that nothing less than a roll back of tariffs would suffice for there to be a deal.
Recent manufacturing PMI data does appear to be showing signs of an improvement, not only in the US, but across the rest of the world as well. This would appear to be a welcome respite to what has been an awful year for the manufacturing sector, which has to all intents and purposes been in recession for most, if not all of this year.
Over the weekend the latest China manufacturing numbers for November showed an improvement to 50.2, its best reading since March, while services also improved to 54.4, also the best levels since March this year, post Chinese New Year.
This appears to have prompted a decent start to the month in Asia trading this morning, along with a decent Caixin manufacturing survey for November, which came in at 51.8, its best reading since January 2017.
This good start for Asia is expected to translate into a similarly positive European open this morning.
Last week the latest flash manufacturing numbers from France and Germany also showed an improvement, raising the prospect that we may well have seen the bottom of the trough.
Today’s final manufacturing PMI numbers from Spain, Italy, France and Germany could well go further in reinforcing this narrative with expectations of improvements in both France and Germany to 51.6 and 43.8. Spain and Italy on the other hand are expected to underperform, slipping back from their October readings to 46.5 and 47.5 respectively.
In the UK while the focus is more on the election campaigning and the unedifying spectacle of political parties trying to score points over last week’s London Bridge terror attack, for now the Conservative party’s lead in the polls, while still over 5%, remains fragile in what is increasingly becoming a much more febrile and polarised atmosphere, if that is even possible. Whatever the outcome of the vote in just over a week's time, the poison in UK politics that has been uncorked in the last three years will be very difficult to rein in.
The pound put in a fairly decent performance last week, a performance that it might struggle to match this week, in what is likely to see the polls fluctuate further. With President Trump arriving tomorrow, for the NATO summit, you can be sure that the opposition will try and make hay against the Conservatives, hoping to tease out a reaction from the US president, which might invite further questions about the US/UK future relationship, and help Labour’s polling numbers in the process. Any narrowing of the polls in Labour’s favour could well be to the detriment of the pound, which made decent gains last week against the euro, hitting a six-month high in the process
On the data front the latest manufacturing PMI for November is expected to stay unchanged from the flash number last month at 48.3, a significant slowdown from October’s 49.6, increasing concern about how fast the UK economy is slowing, relative to its peers.
EURUSD – found support at 1.0980 last week. A move below 1.0980 opens up the prospect of a move towards the October lows of 1.0880. Broader resistance can be found at the 1.1180 area and 200-day MA.
GBPUSD – currently range bound with resistance up near the 1.3000 area which continues be a key barrier, while we also have support at the 1.2760 area. The 200-day MA at 1.2680 is a big support level and while above it the scenario remains bullish for 1.3200.
EURGBP – appears to be breaking lower, falling below the previous lows at 0.8520, the pound now looks on course for the lows this year at 0.8470. Resistance remains at the 0.8670/80 area, and recent range highs.
USDJPY – looks to be heading up towards the 110.00 area and trend line resistance from the 2018 highs at 114.75. Support now comes in at the 108.70 area, as well as interim support at the 108.20 area and 50-day MA.
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