Into the final full trading week of the year, the appetite for risk remains muted and the prospects of a Santa Claus rally appear rather bleak. With dark clouds forming over the global growth picture in recent weeks, traders are looking towards safer haven asset plays and away from higher risk. In the past week alone, Chinese data has been alarmingly weak, whilst Eurozone forward looking PMIs also suggest further growth concerns. This weekend, the Bank of International Settlements has warned that the volatility and risk aversion could be a sign of things to come now. There is a mild unwinding rebound early today in the wake of another 2% sell-off on Wall Street on Friday, but fears are growing. Although there is a lack of real intent on forex markets so far today, the winners seem likely to still be the yen and the dollar, whilst sterling will remain pressured on Brexit uncertainties. Treasuries will remain attractive, whilst equities are unlikely to find much traction in a recovery in this environment. Markets are pricing the Federal Reserve meeting on Wednesday will be a marked dovish shift in policy path and given the elevated levels of volatility, this could in effect force the FOMC’s hand. Any hawkish surprise would simply add fuel to the fire of a risk sell-off.
The selling pressure regained momentum through Wall Street on Friday with the S&P 500 -1.9% (to 2600 ) but with futures a shade higher today (currently around +0.3%) there is a mixed look to Asian markets (Nikkei +0.6%, Shanghai Composite flat). European futures are ticking a shade higher in early moves, with FTSE 100 futures and DAX futures both around +0.3% higher, however, bull traction seems unlikely. In forex, there is limited direction early today, with commodities showing similar lack of direction as gold and oil are fluctuating around the flat line.
It is a quiet start to the week on the economic calendar, with the NAHB Housing Market Index at 1500GMT which is expected to remain at 60 (60 in November).
Chart of the Day – EUR/GBP
Sterling remains under pressure and will continue to be so as Brexit politics continue to dog the pound. Subsequently, the correction on EUR/GBP last week looks to be a chance to buy. The move has unwound back to the confluence of support of a four week uptrend and the breakout at £0.8940. Momentum indicators unwound from overbought in the mini correction last week and have now helped to renew upside potential. It seems likely that sterling will continue to underperform and this will be a pull higher on Euro/Sterling for a test of the key high at £0.9100. With Friday’s marginally positive candle helping to bolster the band of support £0.8940/£0.8950 this is now a key level of support to watch for the near term outlook. The hourly chart shows a near term pivot at £0.9010 needs to be breached to open the upside once more.