Friday saw the S&P500 get to within touching distance of the 1,800 level
and post its sixth consecutive positive week in a row, with the Dow also looking to close in on the 16,000 level for the first time ever.
It appears that despite concerns about the case for global growth investors have adopted an almost devil may care attitude to US equities aft
er last week’s comments to the Senate Banking Committee from Fed Chair elect Janet Yellen.
While this continues to turbo charge US markets, and Asia markets are broadly getting a lift after dissecting some of the detail from the Chinese plenum reforms
, European markets continue to remain rather more cautious with European markets expected to open this morning slightly lower, ahead of some more data releases later this week.
Investors appear to believe that the next Fed meeting will not be looking to taper asset purchases
, after Janet Yellen stated that she saw no evidence of any misalignments in major sectors or in asset prices, and would continue to take steps to support the economic recovery.
While Ms Yellen might not see an asset bubble the weekly price charts tell a different story with the 200 week MA lagging well behind the price action
, on the S&P500 suggesting that we are already in just such a bubble, which could nevertheless continue for quite a while yet.
While US stock markets continue to scale new heights oil prices have been falling in eight of the last nine weeks as supply continues to outstrip demand, pointing to a weak global economy.
In any ordinary recovery stocks and commodity prices usually move in the same direction
, with increasing demand pointing to improving economic activity, which is plainly not the case here.
Given the direction of travel it scarcely matters what is on the economic agenda this week at this juncture. Suffice to say that given the problems in Europe the focus will once again be on the economic data,
starting tomorrow with the latest German ZEW survey which given the DAX
is near record highs is expected to improve on last month’s number, and finishing off with the IFO survey of small businesses on Friday.
Weekend comment from ECB chief economist Peter Praet
that the ECB might consider further quantitative measures has been broadly shrugged off by the currency markets, though one could argue that this could well keep European stocks on a firm footing.
The main attention is likely to be on the preliminary PMI numbers for France and Germany on Thursday after last week’s disappointing GDP numbers for Q3
for France, Italy and Germany, with markets hoping that the continuing divergence between the German and French economies starts to show signs of reversing, or whether the divergence continues into November.
Also on the agenda this week is the latest minutes from the most recent Bank of England and FOMC meetings
and in particular the focus will be on the unexpectedly balanced tone
we saw from the Fed from its October meeting. The tone from the Fed in October contrasted rather starkly to last week’s very dovish Yellen speech on the US economy.
As you may recall from the October statement there was no mention of the government shutdown with the tone evenly balanced between dovish and hawkish, in a way that in no way acknowledged that the shutdown had even occurred. These minutes could well give us further clues as to the likelihood of a December taper
given the rather balanced statement, or they may not given Yellen’s rather dovish tone last week.
– the 1.3500 level appears to be acting as a short term cap for now, with support at 1.3420. A move above 1.3500 brings with the risk of a move towards the 50 day MA and towards 1.3620. The outlook is now starting to become a little uncertain but as long as we stay below 1.3620 then a move to 1.3000 remains possible in line with the bearish engulfing week at the end of October.
– the pound continues to look strong but remains contained within the broader channel of price action with support at the 1.5880/90 area and resistance at 1.6250/60. This move above 1.6110, if sustained argues for a move back to resistance, while below we could see a drift back towards this week’s low at 1.5855.
A sustained break below 1.5900 has the potential to target a move towards 1.5750.
– continues to look weak but remains in broader range with support around the lows this month at 0.8320 and resistance at 0.8470.
While below the long term trend line resistance at 0.8540, from the August highs at 0.8770, the risk remains for a move below the 0.8320 level towards 0.8280, 50% retracement of the entire up move from the 2012 lows and the high this year.
– the US dollar appears to be finding some resistance near the September highs at 100.60.
Behind that we then have 103.75 which is the next obstacle to a move to 105.00.
If the US dollar breaks below the 99.20 level we could see a deeper fall towards 98.50.
Support remains just below the 200 day MA at 97.80 at 97.20 trend line support from the 25th Feb lows.
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