After two days of strong gains, yesterday’s European session was more of a consolidation session, with some modest profit taking, after the UK became the latest country to impose slightly stronger Covid restrictions on its population.
Having recovered most of the losses seen in the post-Thanksgiving sell-off investors now caught between hope that vaccines will be able to afford enough protection against the new variant, against concerns that even a significant acceleration in infection rates might overwhelm health systems.
The news that a third dose of the Pfizer/BioNTech vaccine would afford decent protection against Omicron did initially prompt a sharp move higher, however the move didn’t stick, largely down to ongoing uncertainty about how the spread of the virus will affect economic growth right now.
The modest tightening of restrictions in England, while inconvenient still pales into insignificance when compared to the measures being implemented across Europe, which makes the slide in the pound a little bit puzzling. In comparison to the rest of Europe, the UK still has a fairly low level of restrictions.
Nonetheless the new restrictions still feel like a step backwards and speak to a political class that is struggling to control the narrative, caught between those who support lockdowns, and those who are concerned at the wider economic as well as social damage such measures cause.
US markets having also seen two days of strong gains were able to build on those gains yesterday, albeit on a more incremental basis, despite concerns over rising and more persistent inflationary pressure, and ahead of tomorrow’s November CPI numbers, which could upset the applecart from a sentiment point of view.
As a result of last night’s positive finish, markets in Europe look set to open higher this morning, with Asia markets trading somewhat mixed.
This morning the latest China CPI and PPI numbers pointed to little sign that the rise in global inflationary pressure is abating. Last month October PPI in China hit 13.5%, its highest level since 1995, and well above expectations of 12.4%. Today’s November numbers have shown CPI rise modestly from 1.5% to 2.3%, while factory gate prices only showed modest signs of slowing, coming in at 12.9%.
This doesn’t bode well for the next few months given how PPI tends to front run the CPI numbers, not only in China, but all around the world. More worrying food prices also came in higher with vegetable prices rises rising 30.6%, a trend that appears to be being repeated globally.
Later today we have the latest US weekly jobless claims numbers, which hit their lowest levels since 1969 two weeks ago at 194k, and have since edged back up again, to 222k last week, and are expected to come in at similar levels today. Continuing claims are expected to fall to 1.9m.
EURUSD – Yesterday’s rebound could see another crack at the 1.1385 area. The key support remains at the November lows at 1.1185, as well as the 1.1160 level. A move through 1.1420 argues for a move back to the 1.1520 level.
GBPUSD – Rebounded from the 1.3160 area yesterday. If we hold above this key support, then we can move back higher towards 1.3400. A break of 1.3160 opens up the 1.3000 level. We need to recover back above the 1.3400 level to stabilise and move towards the 1.3500 level.
EURGBP – Broke through the 200-day MA yesterday, with resistance now at the November highs, as well as the 0.8610 area. Support remains at the 0.8480 level and needs to break below this level to diminish the risk of further gains.
USDJPY – The 114.00 level has capped recent gains on the short term. A breakthrough 114.00 has potential to target the 115.00 area. The 112.50 level still looks fairly solid for now. A move below the 112.50 level targets the 111.80 area.
FTSE100 is expected to open 10 points higher at 7,347.
DAX is expected to open 18 points higher at 15,705.
CAC40 is expected to open 9 points higher at 7,023.
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