Fundamental View
Yesterday saw the S&P post its worst down day since October’s correction with the index shedding 1.5%. The downside seen this week seems to be just a straight forward year-end profit taking move with funds rotating into Government bonds. One of the best trades of 2014, long US Dollar, is also seeing some profit taking and this has helped to push the EURUSD up to test the 1.25 handle this morning. The energy sector endured further pain yesterday as Crude oil prices continued to tumble as WTI crude broke below the $61 handle and Brent crude crossing below $65 to extend 4.5 year lows. OPEC reduced their 2015 demand forecasts and the Saudi Arabian oil ministers said that the only change they would make to production would be to INCREASE production if people wanted more oil! T-Notes continued to push higher with the inverse correlation with stocks seen this week holding firm.Today’s View
This morning’s key event was the announcement of the ECB’s second round of their TLTRO funding to Eurozone banks. The result showed that banks borrowed €129.84bn which was marginally lower than the expected €150bn. The market’s mindset going into this release was one of nervousness with more people expecting to be disappointed than not. So actually the €129.84bn is just about OK but is not sufficiently strong enough for the ECB to reach their €3trl balance sheet target without full on QE. This afternoon the key data release will be the US’s Retails Sales data for November which covers the all important Black Friday shopping spree. The chances are this number may disappoint as the initial figures from retailers following the Thanks Giving weekend suggested slower than expected activity. We expect the theme of the week to continue today. We favour the downside for stocks on continued year-end profit taking and this helping to prop up the bond markets. We expect the US Dollar to remain on the back foot and for crude oil we look to short any pullbacks with key resistance now at $62.25Alternative View
If Retails Sales comes in very strong then we may see the dollar rebound and this should feed through positively for stocks and negatively for bonds.
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Editors’ Picks
EUR/USD consolidates weekly gains above 1.1150
EUR/USD moves up and down in a narrow channel slightly above 1.1150 on Friday. In the absence of high-tier macroeconomic data releases, comments from central bank officials and the risk mood could drive the pair's action heading into the weekend.
GBP/USD stabilizes near 1.3300, looks to post strong weekly gains
GBP/USD trades modestly higher on the day near 1.3300, supported by the upbeat UK Retail Sales data for August. The pair remains on track to end the week, which featured Fed and BoE policy decisions, with strong gains.
Gold extends rally to new record-high above $2,610
Gold (XAU/USD) preserves its bullish momentum and trades at a new all-time high above $2,610 on Friday. Heightened expectations that global central banks will follow the Fed in easing policy and slashing rates lift XAU/USD.
Week ahead – SNB to cut again, RBA to stand pat, PCE inflation also on tap
SNB is expected to ease for third time; might cut by 50bps. RBA to hold rates but could turn less hawkish as CPI falls. After inaugural Fed cut, attention turns to PCE inflation.
Bank of Japan set to keep rates on hold after July’s hike shocked markets
The Bank of Japan is expected to keep its short-term interest rate target between 0.15% and 0.25% on Friday, following the conclusion of its two-day monetary policy review. The decision is set to be announced during the early Asian session.
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