The FTSE made a confident start to the week. The strong jobs data from the US gave a good boost to the market sentiment. The second consecutive month of positive surprise in the US has translated into a higher US dollar across the board, a rally in the US stock market and improved sovereign yields. The chances of the December rate hike moved to a new high of 78%.
Nonetheless, the early gains could be vulnerable as now it is China’s turn to release some key macro-economic; soft data out of China could well add some shade to the picture and hammer the early enthusiasm in the market.
WTI nose-dived below $40 following the OPEC’s decision to raise the production ceiling to 31.5bbl/day. The outcome from the OPEC meeting was certainly astonishing, yet at the end of the day, it only matched the reality. No OPEC member is willing to forgo market share even at the expense of price.
Energy stocks made a doomed start in London with BP (L:BP) (-2.28%) down the bottom of the index along with Shell (L:RDSa) (-1.97%). The opposite effect can be seen on the airline sector with EasyJet (L:EZJ) +1.61% following some excellent passenger statistics last week. A host of broker grade changes this morning have elevated the FTSE in early trade with health care and staples taking the chunk of the flow.
The pound is losing ground against both the euro and the dollar before this week’s BoE meeting. The BoE is positioned somewhere in-between the hawkish Fed and the dovish ECB. There is little chance to catch any valuable piece of information out of the MPC meeting this Thursday although Mark Carney is due to speak European Parliament Committee on Economic and Monetary Affairs, in Brussels this afternoon. The divergent policy outlook between the Fed, the ECB and the BoE is expected to cap the upside appetite in GBP/USD, while against the EUR we may well see a stronger pound in the near term.
Draghi on defense: ‘ECB package was the right one’
Across the Channel, the European stocks try to get over the frustration following what was perceived to be a limited policy loosening in the European Central Bank’s December meeting.
As the market continues overthinking on how and why the ECB refrained from lending the expected liquidity to the market, President Mario Draghi justified the latest ECB decision, stating that the ECB rectified the monetary policy to the extent of needs and not to meet the expectations. ‘The package is exactly the right one, the package was no meant to address the market expectations, it was meant to address our objectives on the inflation mandate’ said Draghi in a speech delivered in New York.
It is time to realise that the post-ECB sell-off in the stock market was nothing but an overreaction. There is room for further recovery. The European equities started the week in the green. Despite the soft improvement in German industrial orders in October, the DAX outperformed its European peers by extending its recovery over 1.70% in Frankfurt. The CAC followed with 1.35% gains in Paris. There is certainly room for further recovery and December has a good reputation for flourishing conditions. The DAX closed higher over two thirds of the past ten Decembers.
The euro opened bid in Asia, yet is facing a thick set of offers pre-1.10 mark. As suspected, the 1.08-1.10 zone is where the bulls and bears are opposed. It appears that the euro bulls are getting out of breath to fight back the crowded offers above the 1.10 hurdle.