Slightly subdued week before ECB and NFP

Fundamental View

We have recently seen poor manufacturing data from both China and the Eurozone which allowed the DAX to gap lower overnight yesterday during trade. We have however seen a sharp reversal of this in this morning’s session. The price of oil can be seen below the $70 handle for the foreseeable, implying that manufacturing costs will hold at similarly low levels. These implications has allowed for a short term push to the upside in European bourses especially since yesterday with both ESTOXX and DAX trading new highs for the session. We have, however, a new environment as market participants prepare and position themselves ahead of Draghi on Thursday. The Russia/Ukraine ongoing conflict; although we have heard official lines of ceasefires in Ukrainian city of Luhansk, has sparked some risk-off sentiment across European bourses and German fixed income. The evidence for this is most prevalent in the Bund where we see a large reversal from yesterday’s lows, gaining around 50% of the initial losses we saw yesterday. This morning we have seen European bourses on the back foot after technical tests of the highs, adding weight to this argument. The DAX initiated the technical pop higher before tracing back below the important 10,000 handle bringing ESTOXX back with it. The move has been exaggerated by the significance of the level and there is clear potential for the closing out of long positions ahead of the ECB rate announcement on Thursday. We have also seen HSBC this week increase their QE expectations so definitely the figure to watch this week, even more so than NFP.

Today’s View

It is usual for the first week to be slightly subdued ahead of both the ECB and Non-Farm Payrolls announced on Thursday and Friday respectively. We had UK data in the form of Construction PMI for November released, coming in at 59.4 for the MoM number against the expected 61. This saw some mild sterling weakness and price stabilised around the 1.5700 handle, before moving lower ahead of the PM session. Moving into the afternoon we have US ICSC Chainstore sales and ISM New York, the latter expected at 55 and the highlight of an otherwise dull calendar from a data perspective. We have API Crude oil inventories overnight which will have some lead indicators for the DoE inventory numbers tomorrow. More importantly we have speakers in the form of Fed’s Fischer and Yellen around 1pm today. We could therefore see some increase chatter regarding the US rate hikes, especially as Fischer speaks on a panel in Washington. However do remain aware that both speakers are natural doves and could play down the rate-hike rhetoric established over the past few weeks.

Alternative View

Data is light for the afternoon however we have two speakers for the session. The meetings are not tier 1 press conferences but they pose monetary policy risk to the assumed hawkish stance the Fed has been taking.