Written Commentary
OVERNIGHT
Global equity markets were mixed overnight with down markets outnumbering up markets. Critical economic news released overnight included a series of minimal slowing readings throughout Europe and a series of mostly static to slightly higher inflation readings from Germany, France, Spain, Italy, and the overall euro zone. With the US holiday yesterday, US economic reports were pulled forward to Wednesday and today there will not be any fresh reports from the US. However, there is renewed tension in the Middle East as Israel and Hezbollah are both claiming violations of the just hatched cease-fire deal.
INTEREST RATES
Despite a minor uptick in European inflation concerns overnight US treasuries have posted another round of higher highs in thin holiday trading action this morning. However, despite the slight inflationary vibe throughout Europe, the ECB has continued to toss around the idea of a “bigger” rate cut next month provides support to US Treasuries. Another indirect and slight influence on US treasuries today are dovish comments from the Bank of Mexico’s governing board suggesting further interest rate cuts are ahead. We suspect a portion of the trade continues to raise flight to quality prospects from the potential for worldwide trade riffs likely sparked by the threat of universal US tariffs. Countervailing the upward track in treasury prices is the notable 2.1 point jump in November US consumer confidence earlier this week especially with the gain much larger than expected. However, it is likely that the approach of holiday cheer (in the form of hyper retail activity) combined with ongoing equity market optimism is underpinning the US economic outlook.
EQUITY INDICIES
As indicated earlier this week, past performance is not indicative of future performance but in general equity markets seem to perform well around the Thanksgiving/Black Friday holiday season. While some global equity markets were shuttered for the holiday overnight the overall bias throughout Europe was negative with concerns toward the German economy puncturing a portion of investor confidence in Europe. However, the net spec and fund long positioning in the S&P (while sharply lower from the prior week) remains overbought at 190,000 contracts. Furthermore, the S&P has a very uniform uptrend pattern of higher lows and higher highs in place with a consolidation building effort just above 6000 in the December S&P a likely launching pad for higher highs in the weeks ahead. A slight wet blanket on the market is ongoing regulatory threats for big tech with the US government filing a massive antitrust charge against Microsoft, Canadian regulators suing Google for anti-competitive activity related to advertising and the euro zone attacking big tech on a wide variety of charges. Nonetheless, early predictions suggest on-line holiday sales are running 4% above year ago levels and so far, the trade has not registered concerns of the “shorter 2024 selling season”.
CURRENCIES
Despite signs of soft economic data from Europe, the US dollar has posted another lower-low for the move and has reached the lowest trade level since November 12th. While there are concerns that across the board US tariffs could backfire and prompt a resurgence of US inflation and slow the US economy, we suspect the liquidation of the dollar this week is largely the result of the over reaction to the Trump election in the November 6th through 22nd rally of nearly 500 points. In fact, with the overnight downside extension, the dollar has already failed to find support at the first and second retracement levels of the November rally. However, there are several Chinese PMI readings for November scheduled for release this weekend and that combined with soft European economic results should see the dollar find buying interest early next week around the 105.40 level. Not surprisingly, the yen is receiving the largest windfall from dollar weakness while the euro has seemingly stalled at the 1.06 level. Therefore, the yen continues to draft solid buying interest beyond the simple windfall of the weaker dollar as the trade continues to ratchet up or the prospect of a BOJ rate hike next month and in turn improving views toward the Japanese economy.
Interested in more futures markets? Explore our Market Dashboards here.
Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.
ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
A subsidiary of Archer Daniels Midland Company.
© 2021 ADM Investor Services International Limited.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.
