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European Stocks Stabilize as Euro Rally Stalls

By:
David Becker
Published: Jan 3, 2018, 12:15 UTC

Stocks Seem Tied to Movements in the Currency Markets

daily market forecast

European stock markets moved broadly higher, in early trade, as the dollar stabilized and both euro and pound declined from recent highs against the USD. The Pound remains up against the EUR, which together with a weaker than expected Construction PMI saw the FTSE 100 underperforming versus the DAX, with the latter up 0.50% and eying the 13000 mark again as automakers recovered and tech stocks and chemicals underpinned the recovery after a largely positive session in Asia, where Japan remained closed for a holiday, but Hang Seng and ASX 200 both closed with gains of 0.15%. In Europe, the EU’s new MiFID directive regulating trading in financial instruments is finally in force. The new directive aims to improve investor protection, align regulations and increase competition while strengthening supervisory powers. Investors also continue to keep a close eye on currency markets, as EUR and GDP move down from recent highs against the dollar.

Crude prices remain buoyant, with WTI benchmark showing a 0.5% gain on the day, at $60.66, which is the intraday. Tensions in OPEC-member Iran remain a concern, which topped a series of news events including unexpected supply outages in a key North Sea Pipeline and new Libyan supply disruptions that led to a record speculative long being set. There is now a market narrative that crude prices have overshot to the upside, especially with signs of fresh U.S. production likely to be evident over the coming weeks.

German Jobless Rate Hit a Record Low

German jobless rate is at a new record low. German jobless numbers declined -29K in December more than anticipated, leaving the unadjusted rate at a record low of 5.5%, after the November number was revised down to 5.5% from 5.6% reported initially. The German labor market is looking increasingly tight and companies are struggling to find skilled workers. So far wage growth has been relatively moderate, even though German wage increases have been above the Eurozone average, but the next wage round is likely to be very tough. Bundesbank President Weidmann already warned of the risk of an overshoot in wage growth and inflation and the tone of ECB officials is changing now as the more and more suggest that the current QE program will be the last.

UK December construction PMI underwhelmed at 52.2, declining from the November reading of 53.2. The median forecast had been for 53.1. New orders rose to a 53.1 reading, which was the highest since last May and providing a silver lining to the overall disappointing report. Market participants will be looking to tomorrow’s release of the services PMI following headline misses in both the manufacturing and construction PMI surveys.

About the Author

David Becker focuses his attention on various consulting and portfolio management activities at Fortuity LLC, where he currently provides oversight for a multimillion-dollar portfolio consisting of commodities, debt, equities, real estate, and more.

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