Another record close for US markets last night
appears to be keeping the stock markets bandwagon rolling ever upward, on expectations of continued low rates, easy global monetary policies and a more spendthrift consumer as US investors look towards this week’s US Thanksgiving break and an expectation that the recent decline in fuel prices will compel US consumers to finally shake off the shackles
that appear to have held them back this year, and start spending more money into year end, in the process helping to boost the consumer side of the US economy that has thus far this year flattered to deceive.
This record close looks set to feed into a positive open for markets in Europe this morning,
already buoyed by the expectation that we’ll see further stimulus measures from the European Central Bank in the coming weeks.
This belief doesn’t appear to have been shaken by some contrarian comments to Draghi’s Friday position, from a number of other senior ECB policymakers that appear to reinforce the divisions on the ECB governing council,
about the risks and likelihood of full blown sovereign bond buying.
It appears that markets are betting that Mario Draghi’s determination to push through additional easing could well outweigh the strength of opposition,
from the German Bundesbank as well the reticence of a number of other members of the council including Austria’s Ewalnd Nowotny and Holland’s Klaus Knot.
Bundesbank chief Jens Weidmann’s comments yesterday would appear to underscore this opposition, particularly given the fact that the German businesses appear to be rediscovering some of their optimism after yesterday’s better than expected IFO numbers for November.
More importantly Weidmann highlighted the high legal hurdles for ECB government bond buying
, and these obstacles won’t disappear overnight.
The focus is likely to remain on the German economy this morning
when we get the full break down of the Q3 GDP numbers, which is expected to be confirmed at 0.1% on the headline number.
Of particular interest will be whether we get a rebound in business investment and how well domestic demand is holding up
, given Angela Merkel’s comments at the end of October that German domestic demand was holding up well, despite recent retail sales data telling a different story.
The Bundesbank will also be releasing its latest financial stability report, while the OECD will be releasing its latest outlook on the various economies in Europe
While there may be some bright spots it’s difficult to imagine it will be anything other than sombre reading, particularly as far as Italy and France are concerned
, and at the very least it’s likely to read something along the lines of “could do much better”, a bit like some of my old school reports.
Yesterday’s rebound in the pound could well get put to the test later this morning when Bank of England governor Mark Carney testifies to the Treasury Select Committee, along with MPC member Ian McCafferty on the recent inflation report
, which two weeks ago saw the Bank downgrade its growth and inflation forecasts, with Mark Carney stating that he expected inflation to drop below 1% within the next six months.
While the governor may well put the dovish case, we can expect Ian McCafferty to put the hawkish case given that he has pushed to raise rates by 0.25% at every meeting since August.
Later in the day we also get a fuller break down of the latest Q3 US GDP numbers,
and we could well get a slight downward revision here from 3.5% to 3.3%, however any disappointment here is likely to be outweighed by another further rise in US consumer confidence simply because the data is more current.
– we managed to hold above the 1.2355 level and previous lows this month and as such remain susceptible to another squeeze higher. We need to move below 1.2350 level to target a move towards the 1.2040 level. If we are above to push back through the 1.2470 level we could well retest the highs last week at 1.2600.
– still trading in the broad range between support at 1.5590 and resistance at 1.5745. A break either side could well determine the next move. Below 1.5590 targets 1.5430 while a move through 1.5750 could well see a move towards 1.5880.
– as suspected the failure to overcome the 200 day MA at 0.8050 along with trend line resistance from the September highs at 0.8040, saw the euro fall back sharply, through support at both 0.7980 and 0.7940. We now need to get back above the 0.7940 area, or we could well see further declines towards 0.7870.
– last week’s high at 118.98 has seen the US dollar drift back with a gravestone doji on the daily chart, followed by a bearish engulfing candle on Friday. Is this another false top or could we be set for a pullback? The US dollar still appears to be well supported for its move towards 120.00 on the dips with 115.40/45, the low last week likely to be a key support.
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