- Sentiment remains positive
- UK Budget in focus
European stock indices were mostly firmer just after the open as traders responded to yesterday’s surge in US equities. Yesterday all the major US indices closed out at fresh record highs, holding on to gains made earlier in the session. Crude oil continues to get a lift as traders put aside concerns over a lower forecast for global demand growth from the IEA and record US production numbers. Instead, there’s a strong expectation that last year’s production cut agreement between OPEC and non-OPEC producers will be extended yet again at next week’s OPEC meeting.
Obviously, this afternoon’s Autumn Budget from UK Chancellor of the Exchequer Philip Hammond will be watched closely. There are hopes that “Spreadsheet Phil” will announce something impressive in an attempt to make the Tories relevant once again. Going on his previous performances this seems most unlikely, although there’s little doubt his job is on the line if he fails to impress this time round. The GBPUSD is the market to watch, along with 30-year Gilts.
Later today we have a stack of important economic releases from the US ahead of tomorrow’s Thanksgiving Day, which typically turns into a 4-day weekend break. These include Durable Goods and Crude Oil Inventories, with the release of minutes from the last FOMC meeting at 19:00 GMT.
Stock Index Update
- US indices close at fresh record highs
- US Treasury yield curve continues to flatten
US stock indices soared yesterday in a move which brought fresh record intra-day highs for the Dow, S&P500 and NASDAQ100. The S&P500 topped 2,600 little more than two months after breaking through 2,500 for the first time. The upside move in US equities helped drag European stock indices higher. Yet while the US rally appears relentless, the moves across Europe seem considerably more tentative. European stock indices had begun yesterday’s session on the back foot. This was despite a strong close across Wall Street on Monday night and a solid performance from Asian Pacific stocks on Tuesday morning. But all that reversed as US exchanges opened yesterday afternoon.
It has been difficult to identify a single trigger for the move, although tech stocks were in the vanguard of the surge. But overall there appears to be a pick-up in positive sentiment ahead of Thanksgiving on Thursday. This comes as investors shrug off concerns that tax reform may not be in place before year-end. Yesterday President Trump said that his administration was going to "give the American people a huge tax cut for Christmas." Investors also appear unconcerned by a continued flattening in the US Treasury yield curve. This is generally a negative sign for financial markets as it suggests a lack of confidence in future economic growth. It also makes it more difficult for banks and other lenders to make money due to the narrowing spread between near and longer-term interest rates.
- Crude pushes up towards multi-year highs
- Precious metals steady after Monday’s sell-off
Crude oil rallied yesterday in a move which saw both WTI and Brent come back within sight of the multi-year highs hit just a fortnight ago. Traders put aside concerns about record US production numbers, rising inventories and the prospect of a decline in global demand growth. Instead they were looking ahead to next week’s OPEC meeting. This brings with it the prospect of an extension to the OPEC and non-OPEC producers’ agreement to cut output by 1.8 million barrels per day until March 2018. Despite some chatter that Russia was getting cold feet over the prospect of extending cuts, the overall expectation is that the timeline will be extended by an additional nine months to the end of 2018. In addition, there is some speculation that producers will look to increase the daily output reduction beyond 1.8 million barrels. All this conjecture could keep crude prices buoyant through to next week. But if OPEC and non-OPEC producers fail to deliver, prices could pull back very rapidly.
Gold and silver managed a mild recovery yesterday following a sharp sell-off during Monday’s session. Yesterday’s recovery saw gold push back above $1,280 and silver edge up over $17 per ounce. However, both metals remain a long way below the 4-week highs hit back on Friday. Bullish investors will want to see both metals hold these levels now and then push on to retest resistance which comes in around $1,290 and $17.20 for gold and silver respectively. Both metals had been making steady upside progress over the last three weeks with a succession of higher lows and higher highs. However, we’ve seen a sharp uptick in volatility since Friday with some big intra-day ranges. Understandably this is putting off leveraged traders to some extent as the swings tend to come on the back of large price insensitive orders in the futures market.
- Euro steadies despite German political uncertainty
- Sterling in focus ahead of Budget
FX markets were relatively subdued yesterday following the sharp moves seen over the last week or so. The EURUSD steadied after falling sharply on Monday. Investors were considering the outlook for the single currency given the uncertainty surrounding the political outlook for Germany. In the aftermath of the collapse of talks aimed to form a coalition government, Chancellor Merkel stated that she favoured holding a fresh election rather than attempting to plough on with a minority government. This is seen as a high-risk play with some commentators even suggesting that Mrs Merkel may choose (or be pressured) into standing aside as leader of her party, the CDU. This would have implications for the future of the European Union in terms of further integration and immigration policy amongst other serious considerations. It looks likely to impinge on Brexit negotiations and French President Macron’s vision for Europe as well, and is a particular danger as Italy faces its own contentious election early next year.
Meanwhile, the US dollar continues to fluctuate depending on the perceived probability of tax reform being pushed through before year-end. Sterling is also in focus as UK Chancellor Philip Hammond delivers his budget early this afternoon.
Today’s significant events and economic data releases include the UK Chancellor of the Exchequer’s Autumn Forecast Statement. From the US we have Weekly Jobless Claims, Durable Goods, Consumer Sentiment, Inflation Expectations, Crude Oil Inventories and FOMC Meeting minutes.
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