Stock indices are set to open the week on the back foot as the market cautiously approaches what could be a very significant week for the global financial outlook. US markets returned from their Thanksgiving holiday on Friday but we didn’t see much change in investor sentiment with the major indices finishing the day well in the red. Treasuries continued to rally as market expectation for Fed rate hikes next year continues to pull back, the key 10 year yield is back down around 3.04%. Oil once again took a step lower with WTI trading just above $50/b and Brent now under $60/b, the recent slump has now started to pull other commodities lower with Copper and Iron Ore trading lower.
The Kiwi took a hit this morning as Retail Sales numbers missed by a big margin with the quarterly data coming out flat against expectations of a 1% increase. This should keep the flightless bird under pressure for the next few sessions with traders likely to focus more on the crosses than against the greenback where they may see greater potential.
We did get some further Brexit developments over the weekend with the EU agreeing to UK PM Theresa May’s deal, although stating that this is their best offer and it can’t be renegotiated. Sterling has started the week slightly better bid but it’s certainly not flying and that’s because the hard graft will start now as the PM attempts to get the deal through parliament. Expect further volatility as the issue heats up even further in the next few weeks, with both Euro sceptics in the Tory party and pro-Europeans on the other side of the house set to oppose the deal.
Once again geo-politics are set to dominate market attention this week and the main focus will be the G20 summit in Buenos Aires where Presidents Trump and Xi are set to meet. Comments from both sides will be monitored closely by market participants for any indication of progress as we approach the meeting and expect risk trades to sway in line with sentiment as we move through the trading sessions. Brexit will continue to influence British and European markets as will the EU-Italy budget rift and expect the currencies to be in the firing line on both fronts.
Looking ahead to today’s trading day and now the Kiwi data has been released it’s a relatively quiet Asian session ahead, although we are due to hear from RBA Governor Lowe and Assistant Governor Kent this morning which should keep Aussie traders on their toes. We have German IFO data due out in the Euro session and then later in the day we hear from both ECB President Draghi and BOE Governor Carney. There’s very little in the way of economic data due for release in the New York session and therefore expect sentiment to continue to dominate market direction.