Black Friday

Financial markets perking up despite the lack of economic data signals

Financial markets perking up Friday afternoon in Europe despite the lack of economic data signals. US stock futures doing nicely too, the day after Thanksgiving. US markets will be open for half-day today and we are expecting prices to move higher with investors focusing on retailers as Black Friday sales kick off in the states. Wal-Mart, Sears, Target, JC Penny to name a few.

 

Investors view Black Friday sales as a key indicator of consumer sentiment – a strong sales performance by US retailers will surely be viewed by the Fed as a sign that more and more Americans are able to depart with their cash. Wal-Mart gave an upbeat account of its Thanksgiving night sales on Friday but didn’t offer more detail.  US consumer confidence data was better than expected, helping boost the US dollar. Across other asset classes, gold is up around $12.80. The USD is a little softer this afternoon while US Treasury yields inch up a tad.

 

The current market bias favours equity markets over FX, but on the foreign exchanges the euro is proving resilient as the USD finds itself sold on any rallies against the majors.  It looks like we can expect this pattern to continue in to year end and in to the first quarter of 2014 until the market starts to get nervous about the actual start of any Fed Tapering. As such, the euro should continue to benefit and any positivity out of data in next few sessions would take some pressure of the ECB to come up with additional measures during December thus enabling the bid tone to continue through to the New Year.

 

The catalyst from the Euros recent dip to 1.3400 was all the talk of negative rates, but this scenario has been muted on several occasions and the market seems to be sceptical now with more comments having less downside impact, especially if upcoming data has a positive slant to it. Sure, the ECB will have to provide further monetary stimulus , but consensus is this won’t happen in December and any stabilization in CPI, will see expectations for negative rates/QE get pushed farther out, leaving a contracting ECB balance sheet to be a strong supporting factor for the EUR for a longer period than initially looked likely.

 

The technical set up also favours continuing short term euro strength with 1.3700/10 key resistance a target for an positive hourly trend line a break of which would open up 1.3975 on the technical front and the magical 1.40 figure. Below 1.3450 would likely see a raft of stops triggered and open up key 1.3390/00 support a break of which would cause a serious re-think.