- Main drivers: Sentiment continues to recover; RBA on hold but is upbeat; Economic calendar: final Eurozone GDP, German ZEW
- Sentiment mixed ahead of payrolls: European indices rebounding, risk positive bias on forex majors; precious slipping back, oil rebounding
- RBA holds rates: The Reserve Bank of Australia has kept rates at +0.1% as expected and asset purchases at A$4bn per week until February. The RBA was generally upbeat though noting that omicron generated uncertainty but was not expected to derail the recovery. The RBA will consider the bond-buying programme again in February. [AUD supportive]
- JPMorgan pushes back BoE rate hike expectations: The bank had been forecasting a December hike, now it believes it will be February, due to the omicron variant. This echoes the comments of BoE member Ben Broadbent yesterday who said that it would take time to assess the impact of omicron [GBP underperformer]
- RBNZ stress tests show banking sector resilience: The banking sector has stronger resilience than a year ago [NZD supportive]
- Crypto settles down: after the huge weekend sell-off, Bitcoin has found support and is trading back above $50,000. [Helps to improve broad sentiment]
- Oil continues higher: the recovery on oil continues to build. [Oil higher]
- Central bank speakers: the FOMC is in its Blackout Period. There will be no FOMC speakers until after the next FOMC meeting on Wednesday 15th December.
- Economic Data:
- Eurozone GDP (final Q3) at 1000GMT expected to be unrevised at the final reading +2.2% (+2.2% second reading)
- German ZEW Economic Sentiment at 1000GMT expected to drop slightly to 25.3 (from 31.7 in November)
- US Trade Balance at 1330GMT expected to see the deficit improve to -$66.8bn in October (from -$80.9bn in September)
Broad outlook: positive risk appetite is flooding back in. This is especially evident on major forex, but also the rebound continuing on indices and oil.
- Forex: Oversold cyclicals (AUD, NZD, and to a lesser extent CAD) all outperforming, with the safe havens (JPY and CHF) underperforming again. USD, GBP and EUR are fluctuating somewhere in the middle.
- EUR/USD is still drifting and there is a sense of consolidation today. Support 1.1235/1.1260 protects the 1.1185 key low. Initial resistance 1.1333 is preventing 1.1385 from being tested.
- GBP/USD yesterday’s rebound held the 1.3195 key support. However, this is now an important inflexion as rallies have consistently failed and there is a resistance band 1.3265/1.3300.
- AUD/USD A rebound was already forming but the RBA has given momentum overnight. The key inflexion point of resistance around 0.7100 could be crucial now. A move above 0.7115 opens 0.7170.
- Commodities: precious metals holding ground in consolidation. Oil now looks to be building a decisive recovery.
- Gold is holding ground around $1775/$1785. The selling pressure has eased but there is no recovery yet. We remain cautious as rallies have continuously faltered around $1790/$1800 in the past couple of weeks and we favour pressure on $1758 key support.
- Silver is holding on to support around $22.00/$22.25 as the selling pressure has eased. Resistance is at $22.60/$23.00. Below $22.03 opens $21.40.
- Brent Crude oil recovery is building momentum. The resistance at $73.50 has been breached and the rally is gathering steam for a test of $76.70/77.80. Initial support is now at $73.20/$73.50.
Indices: The outlook across indices is decisively improving now.
- S&P 500 futures rallying through resistance at 4606 is a key near term breakout as it implies a base pattern and c. +100 ticks of upside recovery. Next resistance 4650/4670. Support is firming around 4585/4606.
- DAX has broken decisively clear above 15,510 resistance to complete a near term base pattern and imply c. +430 ticks of further recovery. There is now good support between 15,375/15,510. Next barrier is 15,750 and 15,975.
- FTSE 100 has seen a huge breakout above 7180/7200 and the market is quickly pushing forward now. Closing above resistance at 7320 would be another big positive indication. It would re-open the key 7401 high. Initial support 7218/7260.
Newsflow on Top 3 assets for a portfolio
- With a sharp correction on COVID fears, we look for the selling pressure to ease before assessing the timing to buy.
- The correction has moved back towards the primary uptrend support which needs to remain intact for the bullish outlook to continue.
- Q3 earnings season has been a strong positive influence on the outlook for S&P 500.
- Breaching $1780 support on a sustainable basis seriously questions the recovery outlook, so this is a pivotal moment for the outlook on gold
- Gold continues to be strongly negatively correlated to US “real” bond yields. With real yields struggling due to high inflation, this helps to support gold.
Proctor & Gamble
- Brokers cutting price targets since the results:
- Berenberg cuts price target to $146 (from $162)
- JP Morgan cut its price target to $164 (from $167)
- Deutsche Bank cuts its price target to $160 (from $163).
- Q1 results came in marginally above estimates. Earnings of $1.61 per share beat the $1.59 forecast by consensus. However, there are headwinds from the higher costs of commodities. Guidance for FY2022 remains unchanged.
- Building from the key $138/$140 support area maintains the bullish medium to longer-term outlook.
- We see weakness as a chance to buy.