UK CPI data came in line with expectations at 1.3%

Fundamental Analysis

Yesterday's session was dominated by Mario Draghi's dovish comments that increased the probability of the ECB eventually being forced into more simulative action. The ECB President said that an expanded purchase programme could include Government bonds. This news sent European stocks higher, particularly peripheral indices, and helped to offset the negative factors of worse than expected New York Empire manufacturing number and US Industrial Production. Peripheral bond yields also dropped on the news and the Euro moved back below the 1.25 handle. The session had gotten underway with a risk-off vibe after Japanese Q3 GDP figures came in negative overnight which means that Japan are surprisingly back in recession. However the political response to this has turned this into a short term positive risk assets - more on this below.

Today’s View

Japanese Prime Minister Abe has announce this morning that they are delaying the much criticized second sales tax increase by 18 months pushing it out to April 2017. On top of this he also announced a fiscalstimulus package and that on the 21st December he is dissolving Parliament and calling an early election. Unsurprisingly, Shinzo Abe still stands by his economic plan saying that ABEnomics has not been a failure. In other news this morning the German ZEW figure showed German investor confidence has risen for the first time since the beginning of 2014 with a reported figure of 11.5 vs the expected 0.5 giving European equities a lift through the European morning. UK CPI data came in line with expectations at 1.3% for the headline figure, and 1.5 for Core CPI, leaving the GBP/USD currency pair just edging higher this morning.

Barring any surprise developments, the main events of the day have already happened with the US data due this afternoon not being as important as what was delivered this morning. The US announce their PPI and NAHB House index numbers and Fed’s Kocherlakota (uber Dove) will be speaking this afternoon on monetary policy. We expect a consolidation of this morning's moves and we look for a short entry for US stocks on the basis that the S&P and Nasdaq have failed to move higher in recent sessions despite European stock strength and this signifies a loss of momentum. We also look for a short on the EURSD, crude oil and T-Notes.

Alternative View

Traders are recommended to remain aware of any geopolitical risk coming out of Ukraine, and further developments in Japan.