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Gains in the US overnight have aided this morning’s proceedings as consumer spending kept the US economy on an even keel in Q3. Price action is a little choppy with the greenback trading in a subdued manner against the majors but the fact that cyclical stocks are surging this morning bodes well for additional upside in European equity indices. Low volumes and the speculation that additional Chinese stimulus is en route is imbuing a degree of investor confidence in risk assets.
The unexpected inventory drawdown seen in the API data yesterday has led to a mild recovery in oil prices, while the IEA inventory release this afternoon may provide additional upside, certainly in the short term. Shell and BP have both added 2.99% and 2.33% respectively.
We also get some information from OPEC in respect of its outlook on oil prices and with many extremely bearish on oil’s direction for next year, it’s likely that this will feed into the equity market. So far, the benefits in lower oil prices have been in the main with airline stocks and the market in general is interpreting the decline as an assessment of the global economy and lack of demand, not simply a supply glut issue.
Copper has also undergone a rebound but gold remains vastly unloved yet remains for now above the $1050level. . The FTSE gaining on the back of a bounce in beleaguered raw materials prices on renewed confidence and a softer dollar is no new phenomenon, however. Still oscillating around the 6165 high established last Thursday. Glencore is up 2.6% while BHP Billiton has gained 4.8%.
Some of this can be attributed to some last minute position unwinding ahead of the holidays – but with copper steadfastly holding above the $2/lb mark a larger squeeze higher may be afoot.
French GDP for the third quarter was revised down and consumer spending is also looking softer which has led the euro slightly lower against the dollar. Inflation expectations in the Eurozone are at 1.66%- the lowest since October. Having never risen past 1.85% this year alone, there may well be room for additional easing from the ECB.
The single currency remains well bid against sterling as final GDP for QE printed 0.4% against an expectation for growth of 0.5%. The better than expected UK current account at -£17.5bn (-£21.5bn exp) is somewhat neutralised by a downward revision of last month to -£17.5bn.
The pound has been resilient in the face of this unexpected economic cooling but with the BOE in no rush to move on monetary policy changes and clearly signalling that the next intervention will be to hike, we may see the $1.48 level hold as firm support all else being equal.
Later sees the release of US durable goods orders, PCE Price index as well as UOM consumer sentiment so still plenty of macro left to drive this market.
We call the Dow higher to 17490 (+ 73 points).