The S&P500 and Nasdaq picked up from where they left off last week, once again closing at new record highs ahead of the start of earnings season which is due to get under way in earnest at the end of this week with the latest Q4 numbers from JP Morgan Chase.
European markets also enjoyed a fairly decent day helped by a weaker euro as the single currency struggled to overcome its peaks from last year just below 1.2100, slipping back against a stronger US dollar which enjoyed its second positive day in a row, having lost ground consistently against a basket of currencies for the last four weeks.
While the once again DAX built on its gains of the last few days closing higher for the fourth day in a row it crucially has been unable to push beyond the its previous all-time highs seen in November last year. A failure to test and move above these levels in the coming days could prompt some short term profit taking, if momentum starts to show signs of waning.
The extent of yesterday’s US dollar rebound in the last couple of days would appear to suggest that the long euro trade is getting a little crowded which might suggest further euro weakness in the coming days, despite economic data which continues to remain resilient.
This economic resilience is expected to be reinforced by this morning’s German industrial production data for November, which is predicted to show a rise of 1.8%, while the latest German trade numbers are set to show a nice bump in exports of 1.2%, which in turn is expected to push the trade surplus up to €21.2bn.
The latest EU Unemployment numbers are also expected to show a decline to 8.7% in November and there best levels since April 2009. Italian unemployment is expected to show a fall to 11%, its lowest level since September 2012.
The FTSE100 slipped back to close lower despite making a new record high yesterday, hindered by a slide in the technology sector and a slightly firmer pound. Recent economic data continues to paint a picture of relative optimism despite the incessant background hum of negativity from certain sections of the body politic.
It is true that economic conditions are proving to be trying for certain businesses as shown by the disappointing updates from the likes of Debenhams and Mothercare, however we have seen some positive updates as well, notably Next PLC last week, while later this week Tesco is expected to report its best Christmas period in six years.
The latest spending data also paints a mixed picture with the latest numbers from Visa showing a modest slowdown in household spending over the Christmas period as well as on an annual basis. A separate report from the Bank of England also showed that the recent rise in debt levels had been driven by more credit worthy borrowers assuaging some concerns about a sub-prime problem.
This morning’s latest BRC retail sales numbers for December managed to match the 0.6% gain seen in November reinforcing the narrative that despite higher prices and a more price sensitive consumer the appetite for retail spending still remains fairly strong. It just appears to be more focussed on value.
EURUSD – having failed to overcome the highs of last year at 1.2095, we could see a move back lower towards 1.1850 on a break below the 1.1950 level. Above 1.2100 argues for a move towards 1.2170 which is 50% retracement of the 1.3995/1.0340 down move.
GBPUSD – currently finding support at the 1.3500 area but needs to push beyond the highs of last year at 1.3660. While it struggles to do so the pound remains vulnerable to a decline back to the 1.3300 area. We also have interim support at the 1.3450 area. A move beyond the 1.3700 area argues for a move towards the 1.3830 level and February 2016 pre Brexit vote lows.
EURGBP – remains under pressure after last week’s failure to overcome the 0.8925 area and 100 day MA prompting a slide back to the 0.8815 area. The bias remains to the downside on a break below 0.8810, while below here with key support remains back at the 0.8740 area, with a close below targeting a move towards 0.8650.
USDJPY – continues to remain fairly well supported but has so far been unable to overcome the 113.40 area which was trend line resistance from the November highs. To target those highs at 114.50 we need to push through the 113.60 area. Support comes in at the 112.00 area, which are one month lows.