MORNING ROLL CALL

Dec 8 • Morning Roll Call • 1399 Views • Comments Off on MORNING ROLL CALL

As USA equity markets reach record highs, has the Santa Rally started early? Bah Humbug!between-the-lines1

A Santa Claus rally is considered to be the rise in equity prices during the month of December, however, it’s generally seen (and limited to) the final week of trading, prior to the new year. This phenomena has occurred 26 times over the past 31 years.

“Bah humbug” as Ebenezer Scrooge might have said. Don’t be fooled, the rally is not a reflection of the confidence investors have in the companies that constitute these specific indices, or speculators getting into the Xmas spirit early, it’s a cold, hard, exercise in accountancy. The rally is generally attributed to anticipation of the January effect, which is an injection of additional funds into the market and to additional trades which must, for accounting and tax reasons, be completed by the end of the year. Another reason for the rally is fund managers window dressing their holdings with stocks that have performed well, in order to protect their yearly bonus.

Both the S&P 500 Index and the Dow Jones Industrial Average climbed to all time highs at the close of Wednesday’s trading session in the USA, telecommunications and property stocks joined the post U.S. election rally. These two main equity markets have now increased by circa 10% since the USA presidential election in November.

Industrial production surprisingly fell sharply in the U.K. in the month of October, the surprise 1.3% drop in production over the month followed a 0.4% decrease in September, according to the Office for National Statistics, the biggest monthly fall in four years. Manufacturing fell by 0.9%, perhaps (once again) illustrating the overall fragility of the U.K. economy, irrespective of Brexit.

Following on from the poor U.K. manufacturing figures, came information courtesy of the NIESR that economic growth in the U.K. has flattened over recent weeks. NIESR’s quarterly forecast suggested GDP growth of 2% per annum in 2016 and 1.4% in 2017. CPI inflation was expected to reach 3.8% at the end of 2017.

The National Institute of Economic and Social Reseach has estimated that UK output only grew by 0.4% in the three months to the end of November, the same as in the three months to October.

The think tank cites that support is coming from the service sector in the U.K. only. Rebecca Piggott, research fellow at NIESR, said:

“Recent economic growth has been driven almost entirely by the UK’s broad service sector, supported by robust consumer spending. In stark contrast, the official figures suggest that the production and construction sectors of the economy have declined over recent months.

“Looking ahead, we do not expect such buoyant consumer spending growth to persist. Sterling’s pronounced depreciation this year is expected to pass through to the consumer prices throughout the course of 2017 and 2018, eroding the purchasing power of households substantially.”

Monte dei Paschi and the Italian banking sector rallied, following reports that the Italian government would take a €2bn stake in the bank. European stocks (as a consequence) reached multi month highs, on continued optimism that Italy’s banking sector will be rescued, and that it will receive much needed, fresh capital soon. Credit Suisse Group AG gained 6.4 percent, while Banca Monte dei Paschi di Siena SpA rose 8.7 percent, after reports that Italy’s officials will ask for a 15 billion euro ESM combined loan for the lender and the other troubled other banks.

The S&P 500 Index closed up circa 1.3 percent to 2,241.35 in New York, while the Dow Jones Industrial Average added 298 points to 19,549.62. The FTSE 100 finished up 1.81% or 122.39 points at 6902.23. Germany’s Dax jumped 1.96% to 10,986.69, France’s CAC closed up 1.36% at 4694.72, Italy’s FTSE MIB rose 2.1% to 18,130.66, Spain’s Ibex ended up 0.75% at 8960.4 In Greece, the Athens market added 2.82% to 640.07.

West Texas Intermediate (WRI) crude slumped by 2.3 percent to $49.77, as increased production by U.S. shale producers will offset the output cuts from OPEC. Copper slipped by circa 1.2 percent. Gold rallied for the first time this week, adding 0.3 percent to $1,172.72 an ounce.

The pound dropped by 0.4 percent to $1.2626 after U.K. industrial production slumped by 1.3 percent, a slide in oil and gas extraction in the North Sea contributing. The euro gained 0.4 percent to $1.0761, aided by overall euro confidence, after Italy’s referendum result and a plan to re-structure the banking system, is beginning to take shape. The Dollar Spot Index; the greenback versus its ten major peers, slipped by 0.3 percent amid gains in emerging market and high yielding currencies. The yen strengthened by 0.2 percent to 113.82 per dollar, climbing for the first time in three days.

Economic Calendar events for 08/12/2016 that could affect market sentiment

It’s a relatively quiet day for potential high impact news events and data releases on Thursday. Here’s the potential stand out (medium to high impact) events that traders should be aware of, we’ve made a note of the currency most likely to be impacted.

12:45 EUR European Central Bank Rate Decision. Currently the base rate in the Eurozone is zero percent, there is no expectation for a change to this policy, when an announcement is made at 12.45 London time on Thursday.

12:45 EUR ECB Deposit Facility Rate. Currently the deposit rate from the ECB is -0.4%, there is no anticipation, from the analysts polled, that this deposit rate will change.

12:45 EUR ECB Asset Purchase Target. Currently the ECB is engaged in an €80 billion a month asset swap programme, the belief is that this level of support to the banking system will continue.

13:30 USD Initial Jobless Claims. The prediction is that initial claims will come in at a figure of circa 255K for the week, in line with current trends.

 

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