Financial market research and analysis

Financial markets are calm, as traders slow down activity moving into the year-end holiday session.

Tensions between the US and China mount as President-elect Donald Trump appoints Peter Navarro, the author of ‘Death by China’, to lead the White House National Trade Council.


Monte Paschi’s deadline is today

Monte dei Paschi remains the major highlight in Europe. Funds raised by Paschi’s debt swap progressed to 2.07 billion euros. The bank needs to raise 5 billion euro worth of capital to be saved. The low probability of achieving this amount increases odds of some king of government rescue.

European banking stocks are expected to remain under pressure. Italian banking crisis is enhanced by mounting tensions in Spanish banks, which are now due to pay billions of euros on mortgage deals after they lost the EU case over mortgage floor clauses. Finding a solution to rescue Monte Paschi could trigger a short-term relief rally in the sector, yet the European banks will certainly remain on a slippery ground for a longer period of time.

The short covering in the single currency led the EURUSD to 1.0456 in Asia. Softer US yields also gave a hand to the euro bulls. Although the medium term bias remains comfortably in favour of the greenback, a last minute solution for Monte Paschi could trigger a relief rally past the 1.0500 handle. The key short-term resistance is eyed at 1.0550 (major 38.2% retracement on the sell-off following the European Central Bank and Federal Reserve’s December meetings).


Japan announces record spending

Nikkei (-0.09%) and Topix (-0.07%) were offered during the majority of the trading session in Tokyo, and then pared losses into the session close. Japan announced its plan to reach a record 97.45 trillion yen ($830 billion) in fiscal spending. According to latest news, the government will increase spending in pubic work and defense. At the same time, the Ministry of Finance will also reduce the issuance of JGBs that will mature in 2017 and 2018. In summary, Japan will remain loose, yet there could be a shift from the monetary to fiscal action to help boosting economic recovery in Japan and bringing back the inflation to the mid-term target of 2%.

The yen remained soft against the US dollar. The USDJPY traded in the tight range of 117.41/117.75 in Tokyo. The possibility of further rise to 120.00 is still on the cards, yet thinned holiday volumes could prevent the pair from a successful attempt to the upper zone before Christmas.


Dow's craving for the 20K level

The Dow Jones failed to conquer the 20K level in New York yesterday.

The looming question is how long could the bears fight back the rising appetite in 20K. US stock futures softened into the European open.

The Dow is called 22 points lower at 19920 at the US open. S&P 500 is seen 5 points down at 2260.