Black Friday Optimism Dims

Daily Analysis - 28/11/2016

US Holiday Retail Sales Increasing


Financial markets are reopening weaker after Thanksgiving, due in part to mixed retail figures for one of the strongest days for the sector annually.  While revenues at brick and mortar retail outlets fell, eCommerce retailers picked up the slack with double digit growth as the holiday shopping season gets off to a slow start.

Brick and Mortar Black Friday Sales Disappoint

According to the National Retail Federation, the Thanksgiving weekend sales period saw purchases fall by -3.40% from a year earlier.  Sales at retailers’ physical locations fell by over -5.00% per some industry estimates during the period compared to online sales climbing above $3 billion for Black Friday alone.  Overall, surveys indicate that Americans plan to spend less this year during the holiday season than last, indicating that sentiment may be shifting.  While warmer weather was the main culprit blamed for the latest development, weather is unlikely to be the primary driver of weaker spending as Americans tighten the purse strings.  Stocks are weaker following the weekly reopening as the risk rally over the previous few weeks fades with Dow, Nasdaq, and S&P futures all opening lower and trending just shy of intraday lows.


Yen Crashes as Dollar Momentum Wanes

Following a dramatic rally over the last few weeks, the USDJPY pair plunged nearly 150 pips at the weekly reopening before finding its footing.  Hurt by weakness in the dollar, the currency pair trended as much as 250 pips below the highest point since March before rebounding modestly.  Financial markets are showing increasing nervousness about the pace of gains in risk assets following the post-election rally.  With the dollar taking a breather from recent strength, the currency is on the retreat against all major peers as investors reassess and take profits.  With more profit-taking likely throughout the coming sessions following the spectacular gains, a deeper technical correction may be in order.  It is worthwhile to be reminded that the correction or pullback usually happens swifter than the move.  In the meantime, USDJPY is back below 112.00 after briefly retaking the level.


Oil Opens Lower as OPEC Deal Viability Dwindles

Chatter over the weekend showed that the acrimony between regional foes Iran and Saudi Arabia continues to grow after Iran accused Saudi Arabia of reneging on its promise to grant Iran an exemption from output cuts during the Algeria conference.  Furthermore, the Saudis have decided not to participate in a meeting with non-OPEC countries scheduled for November 28th, believing that the cartel must form its own consensus first.  The debate about quotas is thus set to continue over the coming sessions, with the Saudis increasingly taking a tougher tone.  According to oil minister Khalid al-Falih, OPEC does not have to cut production at all, especially with projected demand growth expected during 2017.  While likely a negotiating tactic, the optimism of a deal being reached is fading quickly.  Oil prices reflected this sentiment, with WTI futures nearly reaching $45.00 per barrel before rebounding.


French Socialists in Disarray as Right Picks Up Momentum

With Francois Fillon managing to unite the French Republicans after a victory in the primaries, a new threat to the incumbent socialist party has emerged as populist sentiment grows throughout Europe.  The socialist party is meanwhile facing the possibility that Prime Minister Manuel Valls will challenge current President Francois Hollande for the top space on the socialist ballot.  While the National Front’s Marine Le Pen has garnered significant support, the rise of Fillon threatens her political ambitions as the Republican attempts to appeal to the center ahead of the 2017 elections.  With the Left in disarray, the Right may win a sweeping victory as they pledge to fight economic woes and tackle high unemployment.  In the meantime, the French CAC 40 futures have reopened the week lower and are on the retreat after trending horizontally for the past two weeks.


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