Risk sentiment was higher during Asian trading, with the MSCI World Index showing gains for the last 5 trading days and the US Dollar losing some of its strength (although still near its yearly highs against the Euro). Gains in equity markets are being based on the assumption that a soft landing can be seen in the US economy and most of the major indices are trading around 1% higher to start the week. Volatility, however, remains low as many of the major trading centers (the US, UK and Hong Kong) are closed on holidays.
We did see some headlines in currency markets, as the Chinese Yuan rose to a seventeen year high on circulating rumors which suggest that that the country’s leadership and central bank will allow the Yuan to appreciate at a faster rate so that capital outflows can be controlled and limited. The Euro is seeing some bounce against the US Dollar, but we are still within reach of the yearly lows, trading in the 1.3050 region. The Japanese Yen is also moderately lower as carry trades have been performing well into the close of December.
Looking ahead, key macro data will come with tomorrow’s Home Price Index (which tracks real estate prices of 20 of the largest cities in the country) and market expectations are for this number to show a decrease from the previous month, at -3.2 percent. Consumer confidence is also scheduled for release and this is expected to come in at its highest level in five months at 58.6.
Friday’s releases showed that Durable Goods orders came in at a four month high in November and New Home Sales also surpassed market expectations, following recent trends set in home building data reports. This, along with improvements in employment data (particularly in jobless claims) is giving markets a green light to push stock markets higher and removing some of the pessimism that was seen earlier in the year. The MSCI global index was up a total of 3.1 percent last week but remains in a downtrend for the year, showing declines of 9.2 percent. This has not been matched by the S&P 500, however, which managed to erase its losses for the year after last week’s performance.
In commodities, Gold was lower (down 0.5 percent) at $1,595 an ounce as safe haven assets are being sold and copper prices were also lower by 1.2 percent on diminished expectations for demand. Today, the Comex and the London Metal Exchange will be closed for trading.
We are seeing a very clear range develop in the USD/JPY after prices managed to find support at the 61.8% retracement of the latest daily rally. The level to watch above is now seen at 78.25, and a break here will accelerate gains and target the psychological 80 level. A break of 77.20 removes the bullish bias.
The S&P 500 continues to make strong gains and we are now seeing downtrend resistance being pressured at 1260. We are expecting this level to break, given that we have removed all Fibonacci resistance levels. An upside break would be encouraging but the next resistance levels is very close, resting at 1270.