China Spoils The Party

Daily Analysis - 26/11/2017

Europe in Spotlight Amid US Holiday

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The Euro rallied to a two-month peak against the US Dollar on Friday after key surveys from the Euro Area showed business activity accelerating further in the region, even as trading remained subdued due to the US Thanksgiving holiday on Thursday. Meanwhile, financial markets in China witnessed a spike in volatility amid investor concerns of a government clampdown on online lenders.

Last Week


Flash readings of Euro Area Purchasing Managers’ Indices for November showed that the manufacturing and services sectors recorded their best combined month since April of 2011. On the political front, coalition talks between German Chancellor Angela Merkel’s Christian Democratic Union and the pro-business Free Democratic Party broke down, throwing the country into a nearly unprecedented political crisis. However, the centre-left Social Democratic Party, which secured the second largest share of votes in the September 24 general election, reversed an earlier decision and agreed to talk with Merkel on Friday, raising the prospect of a new “grand coalition.”  Across the Channel in the UK, Prime Minister Theresa May received a 10-day deadline from the European Union to improve her Brexit divorce offer or risk a stalemate during a December summit.

The most notable economic event of the holiday-shortened US trading week was the release of minutes of the Federal Open Market Committee's October 31 - November 1 meeting. Policymakers generally agreed that the economy was headed for strong growth, and confirmed that a December interest rate hike was in the offering despite softer inflation. Among commodities, US crude oil futures were the standout performer, surging to their highest level in over two years, after a partial shutdown of TransCanada’s Keystone pipeline reduced delivery estimates for the month.

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The Week Ahead


Busy days ahead are expected following a relatively quiet week, with crude oil likely to grab prominent headlines as the Organization of Petroleum Exporting Countries meets in Vienna on November 30th to discuss a potential extension of production curbs. The current consensus is that OPEC members, along with Russia, will agree to continue the output controls till the end of next year. Failure to reach a conclusive deal could spark a sharp sell-off in oil prices. From the US, the Federal Reserve’s preferred inflation gauge, the core Personal Consumption Expenditures (PCE inflation) index, is forecast to tick-up by 0.10% to 1.40% year-on-year in October.

Investor attention will also shift to US tax reform as President Donald Trump meets with Senate Republicans during a luncheon on Tuesday ahead of a vote on the tax bill. In the UK, the Bank of England is slated to release the results of its 2017 stress tests for the country’s seven largest lenders, while the Euro Area flash inflation reading for November is due on Thursday. It will be a particularly data heavy week for Canada, with the economy projected to grow at a third quarter annualized pace of 1.60% on Friday, a substantial easing from the previous quarter’s 4.50% clip.  Employment is forecast to rise by 10,000 in November, edging the unemployment rate down to 6.20%.

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