Slightly sluggish start for equities on Monday morning as traders brace for the US to return to top flight action after the Thanksgiving holiday. London and Frankfurt were a bit lower, Paris a bit higher after a generally downbeat Asian session, where the tone was set by another decline in Chinese industrial profits. US stock markets rose in the holiday-shortened week, the fourth week of gains on the bounce.
Gold rose to its highest in six months with US Treasury yields and the dollar in a bit of a post-Thanksgiving funk. Too much turkey weighing – the yield on the 10-year was still below 4.5 per cent, while dollar futures tested the 103 support as gold touched $2,018, its best since May, before pulling back a touch.
The weaker dollar helped sterling rally to its best in two months against the greenback, with GBPUSD holding 1.26. It follows a strong rally on Friday, taking its monthly gains to almost 4 per cent, after an unexpectedly strong UK composite PMI for November indicated surprising resilience in the UK economy. Maybe there was some uplift from the Chancellor’s Autumn Statement. EURUSD also nudged up but came up short of last week’s three-month high.
Eurozone, Australian and US inflation will be eyed for the central bank pause narrative. Eurozone headline inflation dipped from 4.3 per cent in September to 2.9 per cent in October, raising hopes that the worst is over and the European Central Bank can stay on pause mode. ECB Governing Council member Luis de Guindos has warned however that he expects a temporary rebound in inflation in the coming months. US Core PCE inflation for October is also due up having softened to 3.7 per cent in September – slowing but not much.
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A delayed Opec+ meeting seems closer to achieving a compromise, with sources indicating that Nigeria and Angola are coming in line with the cartel. They won’t allow a meeting to breakup without a deal on 2024 production quotas so if it’s going ahead then we can be pretty sure they have already compromised.
It seems likely that Opec and its ally Russia will extend production cuts into next year – the question is whether they have the will to deepen them a bit more, and can persuade some other members to help out. As noted on Friday though, record US production and rising output from Brazil and Guyana mean Opec cannot sway the market into a deficit quite so easily – non-Opec is filling the gap and the market will be in surplus next year whether Opec extends or not. Crude prices fell again this morning, drifting down towards last week’s lows, which were struck when Opec said it would delay the meeting from Sunday to Thursday. Lots of volatility in crude in recent days may continue as the meeting approaches.
The Trader is written by Neil Wilson, chief market analyst at Finalto
