Financial Market Research and Analysis

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Banks rally on Monte dei Paschi plan

Avid investors drove the DAX (+1.08%), the CAC (+0.92%) and the FTSE MIB (+0.68%) higher regardless of the overbought market conditions and looming political risks.

 

The major driver of the European stock rally appears to be the rescue plan for troubled Italian bank, Monte dei Paschi. The news sets the stage for rescue deals for some of the other Italian banks with troubled loan books.

 

Speculation that the European Central Bank (ECB) will expand its bond purchase program at Thursday’s meeting is helping to drive money into the European stocks. Gains could be fragile however, as ECB President Draghi has little room to surprise the markets with ultra-loose action. Any hawkish hint could oblige stocks to give back gains.

 

 UK industrials set to give back gains

 

FTSE 100 stocks opened on a firmer footing in London. Industrials (+1.13%) lead gains at the open as industrial metals gained in the overnight trading session, despite an unexpected 0.5% contraction in the Australian 3Q GDP. The unexpected contraction in the UK’s manufacturing (-0.9% month-on-month) and industrial output (-1.3% month-on-month) dented the early appetite. Pharmaceuticals are under selling pressure in London. Recent data suggests that the unexpected contraction in UK output was mostly due to a slump in pharmaceutical sales.

 

The pound is running out of steam against the US dollar and the euro. Cable slipped under the 1.26 handle for the first time in three sessions. The weakness against the US dollar could extend toward 1.2580 (Fibonacci’s 50% level on Nov 28th to Dec 6th recovery) and 1.2533 (major 61.8% retrace).

 

It is another day of gains for UK-listed mining stocks.

 

Basic materials (+1.10%) and financials (+1.06%) are securing the rally.

 

Rio Tinto (+3.81%) outperformed since it was upgraded to ‘outperform’ at Credit Suisse.

 

Anglo American (+3.14%), Glencore (+2.31%) participated in the bull sentiment, while BHP Billiton (+1.75%) lagged after being cut to ‘neutral’ at Credit Suisse.

 

 

BoC to remain on hold

 

The Bank of Canada (BoC) is expected to maintain the status quo at today’s monetary policy meeting.

 

A recovery in oil prices as OPEC, Russia and Iran agreed to cut production has helped the Loonie defend gains against a broadly stronger US dollar. Yet, the Trump-worries and a potentially more protectionist US would lead the macro investors back from joining the positive move above the 75 cents level.

 

 

US crude inventories in focus

 

Oil traders are on hold before the weekly US crude inventories data. The US crude inventories are expected to have contracted by 1.4 million barrels last week, compared to 900K a week ago. 


A third consecutive week of contraction could generate the positive push needed to break above $52.80/$53.00 per barrel, potentially leading to a further rise towards mid-term resistance at $54.00/$55.00. On the flip side, failure to pick-up momentum should trigger a downside correction to $51.00 (minor 23.6% retracement on Nov 29th to Dec 5th rise), before $49.86 (major 38.2% retracement).

 

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