Speculation about a possible Fed taper sent US markets sharply lower again yesterday
and their worst falls in four weeks and is likely to translate into a lower European open this morning
While there is some data this morning in Europe including EU industrial production for October and the ECB monthly report the main focus is likely to be on this afternoon’s US data.
It’s been nearly seven months since that day in May when Fed Chairman Ben Bernanke
first raised the prospect that the Fed might look at tapering its asset purchase program if economic data were to improve sufficiently to warrant it. Is it possible that this time next week we could see the beginning of the end of this latest bond buying program with a small reduction in the pace of the program.
The past two days stock market reaction would seem to suggest that some investors seem to think so, though US bond market yields on the 10 year
remain well below last Friday’s post payrolls spike of 2.93%,
which would seem to suggest that bond markets remain much more sanguine at the moment about the prospect of a taper next week.
That might change, particularly if today’s November retail sales data
comes in ahead of expectations. In the period since July US retail sales have risen 0.8%, an average of 0.2% a month as consumer sentiment nose dived due to concerns about the government shutdown and US political dysfunction.
Given the recent optimism over the Thanksgiving break and retailers footfall
and web traffic numbers over that weekend, a good retail sales number could well be the final piece of the jigsaw that tips the scales even further towards a taper next week, and potentially tip the S&P500 through the 1,775 level and four week lows.
Expectations for November retail sales are for a rise of 0.6%
, an improvement on the 0.4% seen in October, while weekly jobless claims
are set to rise slightly from the 298k last week to 321k. Only a disappointing number here could temper any taper concerns
, while any number close or above expectations will simply reinforce it and fuel risk aversion.
A sharp fall in import prices for November
might temper taper talk on the margins, particularly if they show a much bigger drop than the -0.7% expected
and raise deflation concerns.
The falls of the past two days appear to have put thoughts of a Santa rally on ice for now but given the gains seen so far this year the prospect of further gains always seemed a tall order, even accounting for historical precedents, particularly since the S&P has only posted two negative months this year.
– the euro continues to push incrementally higher with support now likely to come in at the previous resistance level at 1.3630. The first target remains the October highs at 1.3830, while behind that we have long term trend line resistance from the all-time highs at 1.6040 which comes in at 1.3935. Any dips seem likely to find support at 1.3620 Only a break below the 1.3480 level would then argue for a move to the lows last week at 1.3400, and then below that 1.3300.
– yesterday’s sharp drop might suggest we could well have seen the top in the short term but as long as we stay above the 1.6250 level then the uptrend remains intact. Initial support lies at yesterdays low at 1.6335. Only a move below the 1.6250 level argues for a deeper pullback towards 1.6110.
– yesterday’s break through the 0.8400 level brings with it the risk of a move towards the 0.8470 area and trend line resistance from the 0.8770 highs.
For the move towards 0.8170 to play out we need to see a move back below the 0.8370 area, which acted as initial resistance after the recent low at 0.8250.
– having topped out at 103.40 twice in the space of a week and with Tuesday’s bearish daily candle we could be in the process of forming a double top with support at 101.60. We need to take out 103.75 to target 105.70 the 61.8% retracement of the down move from the 2007 highs at 124.30 to the 75.30 lows. A move below 101.60 targets 99.80.
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