The Day So Far
Geopolitics to the fore this morning as markets were rattled early doors by news that Turkey had shot down a Russian fighter jet around the Syrian border. This came on the back of a mixed Asia session and a weak finish yet again to the US session, where equities failed to hold on to their earlier gains despite some encouraging M&A activity in the pharmaceutical space, where it was announced that Pfizer and Allergan are set to combine in a deal potentially worth $160bn. This takes global M&A activity for 2015 to $4.2 trillion, above the pre-crisis high in 2007. This could be interpreted in several ways; either corporate CEOs are feeling increasingly bullish about the prospects for global growth; or more likely, the lack of organic growth sales prevalent in corporate earnings statements the past couple of years, coupled with high cash levels and low borrowing costs, is leading a mad dash to consolidate before the Fed begins a fresh hiking cycle and higher borrowing costs kick in.
Not even some solid German IFO survey results for November could quite lift sentiment, although the euro continued to grind higher throughout the session, trading up towards the 1.0670-80 levels where there has been considerable resistance. T notes have enjoyed a positive session in classic ‘risk-off’ trading, trading above the 127 handle before retracing a touch as markets stabilised. In the equity space, the S&P sold off some 20 points pre-cash open and the Dax broke below 11,000 for the first time in a week.
The Afternoon View
Looking ahead to this afternoon, we get a second look at US Q3 GDP, as well as the S&P/Case Shiller House Price Index, followed by the Consumer Confidence Index at 15:00 BST. Look for risk-off to continue this afternoon, equities should remain under pressure and we maintain our short bias in the euro and crude, although as noted yesterday the downside momentum is slowing and settling into more range bound markets before the crucial ECB and OPEC meetings next week.
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