German Ifo numbers give some reason to be optimistic

Good morning,

• Central Bank stimulus support markets again on Monday;

• German Ifo numbers give some reason to be optimistic;

• PMI readings in focus during the US session;

• BoE inflation report hearing, GDP releases and OPEC meeting key this week.

The trading week has got off to a good start on Monday, as the positivity surrounding central bank stimulus that drove markets higher on Friday continues to lift investors.

The People’s Bank of China’s decision to cut interest rates on Friday morning for the first time in two years has really given the markets a boost, particularly as people had not expected the central bank to take such bold measures. Targeted stimulus measures had been touted and even an injection of cash, but not a cut in interest rates which potentially shows just how concerned the PBOC is about growth and, maybe even more so, the inflation outlook.

Add to this the comments from ECB President Mario Draghi who claimed on Thursday evening that the central bank must to more to prevent the eurozone from falling into deflation territory and we have a very accommodative monetary stance from many of the world’s largest central banks. The Fed may be becoming less accommodative but we have to remember that its balance sheet is still more than $4.5 trillion and interest rates remain at record lows. With this backdrop, what exactly is going to stop markets rallying into next year?

The start of the week is going to be a little quiet due to there only being a small number of economic releases scheduled. This morning we had the German Ifo release for November which gave us some reason to be more optimistic, as all three indicators – business climate, current assessment and expectations – rose on the month and easily exceeded expectations. As always with these surveys, this is encouraging but the usual downfalls do apply in that they’re not always that reliable a should therefore be taken with a pinch of salt. That said, it’s certainly nice to see some more positive data coming from the eurozone’s largest and most important economy.

In the US today we’ll get a couple more PMI readings for November, with the services and composite readings being released. The services reading is expected to pull back slightly from a month earlier to 56.8, which when you take into consideration last week’s decline in the manufacturing PMI would mean that the composite reading should also decline back towards the 55-56 level.

The rest of the week will be a little more eventful, with Bank of England Governor Mark Carney appearing before the Treasury Select Committee tomorrow for the inflation report hearing, while we’ll get GDP figures for the third quarter for the UK and the US in the days following, as well as durable goods orders and inflation data. Not to mention the OPEC meeting on Thursday, when some are expecting a cut in production in order to support prices.

The S&P is expected to open 3 points higher, the Dow 18 points higher and the Nasdaq 4 points higher.