US: Fed’s meeting minutes to shed light on further trimming of asset purchases
The Thanksgiving holiday in the US means a short week with the data flow concentrated on Wednesday. The highlight may well be the minutes to the November 3rd FOMC meeting when the Federal Reserve announced the start of QE tapering. Monthly asset purchases have been trimmed $15bn from $120 bn, but the accompanying statement suggested that they would be “prepared to adjust the pace of purchases if warranted by changes in the economic outlook”. St Louis Fed President James Bullard has proffered support for tapering by $30bn per month and we will be looking to see if the minutes shed light on what the criteria might be to justify such action. With the economy likely to grow in excess of 6% annualized in the current quarter and inflation to average around 6.5%, the case for a swifter path to policy “normalisation” is strong.
In terms of the data, we expect a modest upward revision to 3Q GDP growth, but the October personal spending will be more significant as it tells us how the fourth quarter started. Based on retail sales it should be good while the Fed’s favoured measure of inflation, the core PCE deflator, will continue pushing higher and on an annual basis come in double the 2% target. Home sales numbers are not expected to move much on the month, but the increase in homebuilder sentiment suggests buyer traffic is on the rise and this should lift housing activity in the new year.
With US bond and equity markets closed to observe Thanksgiving Day on Thursday, liquidity should be light for the remainder of the week. This Black Friday will not draw its normal attention as many retailers will struggle to provide attractive deals given the strong demand and tight inventory situation that should last throughout the entire holiday season.
For more trading tools, real time data and technical analysis visit us https://lotusacademy.africa/
US Equities
The major equity benchmarks ended the week mixed as investors weighed strong economic and earnings against inflation fears and a rise in covid cases in Europe and the US. The Nasdaq index hit another record intraday high on Friday. Cyclical sectors, including Energy, Financials, and Industrials, declined, while the tech-heavy NASDAQ 100 outperformed, advancing 2.36% for the week.
On the other hand, the 30-component Dow Jones Industrial Average, which lists blue-chip mega cap shares, fell 0.63% during the same week. Worse still, the small cap Russell 2000 lagged, plunging by 2.36% over the same period. Since small cap domestic firms suffered the most during lockdowns, the Russell 2000 index has been the economic recovery poster child.
The lower valuations of small caps also make them more attractive to some investors. So far this month, roughly $2.4 billion has been funneled into the stocks of small American corporations, the most significant monthly inflow since March—and the month of November isn’t over yet.
EU
While all central banks are coming under the spotlight at the moment, the ECB by comparison is in a rather luxurious position. Inflation is running at more than double its target but that’s expected to fall at the turn of the year, much earlier than in other countries, and then back below target over the medium term.
The ECB has spent the last decade fighting the risk of deflation more than inflation and a history of low price pressures will stand it in good stead in these troubling times. It’s not immune, but it’s among the best positioned.
The ECB accounts should reinforce the view that inflation is not expected to become a problem and should return below target without the need for rate hikes next year. President Christine Lagarde will likely reinforce this shortly after the minutes on Thursday, as she has repeatedly since the meeting. Flash PMIs are the standout economic releases next week, alongside the German Ifo, Gfk and GDP readings.
South Africa
After raising interest rates last week and starting the normalization cycle, eyes will be on the PPI data this week for further signs of a build-up of inflationary pressures. More hikes are coming over the next couple of years, with the current level still well below its neutral rate. The economy is still in need of support and the process will be gradual.
South Africa
After raising interest rates last week and starting the normalization cycle, eyes will be on the PPI data this week for further signs of a build-up of inflationary pressures. More hikes are coming over the next couple of years, with the current level still well below its neutral rate. The economy is still in need of support and the process will be gradual.
US DOLLAR
On Friday, the dollar rose to its highest level since July 16, 2020. The dollar’s rise continues to resume the uptrend after a double bottom. On the monthly chart it’s clear how support and resistance at the 90.00 level goes back to 1998. If the greenback resumes its current upward momentum, it will retest the 100.00 level before reaching for 103, the highest point for the global reserve currency since December 2016.
Commodities
Gold closed lower on both Friday and for the week as a whole. However, this might just be taking a step back before it jumps again. The precious metal’s current retreat, within a congested range, is typical after the near 7% pop the commodity saw within ten sessions, which included a seven-day straight winning run. An upside breakout of the “Falling Flag” will complete a continuation pattern, promising another $120 rally higher from the breakout point.
Crude Oil, recorded its sharpest weekly decline since August as traders priced in the outlook for additional COVID-related social restrictions on a global scale, just as some of the largest energy consuming nations have been considering tapping into emergency reserves to ease a global supply choke-up. WTI dropped to $76 a barrel Friday, posting a second trough, completing a descending series of peaks and troughs, finalizing a short-term downtrend.
Learn more about Financial Markets and learn to trade through an extensive accredited course right here https://lotusacademy.africa/product/skills-certificate-in-financial-markets/
Cryptocurrency
Bitcoin clawed its way back above the neckline of a potential H&S top, though it found resistance by the 50-DMA that ended a two day rally. The cryptocurrency’s MACD, RSI and ROC are still within bearish formations. Perhaps bulls will attempt another rally that will build the right shoulder of an H&S top. In order for the bulls to regain control we would need to see a sustained break above $60000. Near term support found at the 52k-54k level for continuatuin to the upside.
More opportunity at this stge seems to be around the Altcoins market with better Risk to Reawrd on offer on Solana, Polkadot and BNB coin. Keep an eye for the updates during the week
South Africa
After raising interest rates last week and starting the normalization cycle, eyes will be on the PPI data this week for further signs of a build-up of inflationary pressures. More hikes are coming over the next couple of years, with the current level still well below its neutral rate. The economy is still in need of support and the process will be gradual.
