So, equities continue to drift higher, forex pairs have stabilised and commodities show a slight bullish bias ahead of their key risk events towards the end of the week. In the absence of any major economic announcements in the European session, markets have left to the comments of central bankers to drive sentiment.
The big impact has been seen on the Eurozone indices and debt yields which have reacted accordingly to the dovish comments from the ECB’s Benoit Coeure. ECB commentators (outside of Germany and Austria) have been alluding to a desire to push forward a programme of full blown QE in the past few days (such as Draghi and Constancio) and this has really given equities a boost and pulled sovereign yields lower. In an interview this morning, Coeure suggested that he wanted the ECB to discuss asset purchases at next week’s meeting.
The impact has been for core Eurozone sovereign debt yields to continue their decline, with the yield on the French 10 year (see above) today falling to an all time low at 1.08% today. Furthermore, continuing from the boost that Draghi gave to Eurozone indices on Friday, the DAX and CAC have again been driven higher. The DAX is up around 1% and the CAC up around 0.6% (once more the FTSE 100 is lagging its European peers gaining just 0.1%). In fact, the German index has actually breached the key September high at 9891 this morning (although has just failed to hang on to the breakout) and is now just 1.7% from its all time high. The chief concern for the DAX has been that the technical momentum indicator, the RSI, is now the highest for the past 12 months (at around 73). This is a positive sign but also suggests that it is becoming a touch overstretched and upside potential could become limited at these levels at the risk of some profit-taking.
Other than that, markets have been rather sedate this morning. Forex pairs have barely budged, with the comments from the Bank of England’s inflation report hearings doing little to impact sterling. This is despite the assertion from MPC member Forbes that slack in the economy may be less than previously thought (this is a hawkish statement as it could mean that the BoE would be required to raise rates sooner than thought because less slack in the economy should begin to drive wages growth and subsequently inflation). If anything, sterling has actually fallen.
Precious metals have been on a mildly positive drift higher today. I feel that with gold especially, there is a positive bias that is building through the week as we move towards the potentially crucial Swiss Gold referendum on Sunday. The price remains supported above the key pivot level at $1180 and there is a sequence of higher lows. If the positive bias continues, pressure will be building on the recent resistance at $1207.70.
In all though, it seems as though traders are focused on Preliminary Q3 GDP for the US this afternoon. Although there is an expectation of a slight downward revision to 3.3%, the dollar has had another solid morning. Consumer Confidence this afternoon is expected to show another positive number (up to 96.0 from 94.5 last month) which could also give US assets a boost ahead of Black Friday (the biggest shopping day of the year in the US).