27/11/2023

General Comment

The markets continued to rise for another week even though the intensity of the rise and volatility were visibly reduced, but that was perfectly reasonable due to the Thanksgiving day in the United States. The central event of the past week was the announcement of the Fed’s minutes on Tuesday, but we did not learn anything shockingly new. The decision to keep interest rates at current levels was unanimous and once again reiterated that when the rate cut will begin is something that depends on the financial results that will be announced month after month. The positive feeling however remained in the markets as the possibility of a new rate hike evaporated and all information converged that the reduction would begin to happen from next spring.

Relative to the other financial results announced, manufacturing in the United States showed a slight downturn last month while services tended to increase.

As for Europe, Christine Lagarde said in a speech that the battle of high inflation has not yet been won, even if there is progress in reducing it. She also said that many actions and interest rate increases have already been taken and that the European Central Bank is awaiting the results of these actions.

In China, the People’s Bank of China decided to leave interest rates unchanged at 3.45%. As per a Reuters report, advisers to the Chinese government are set to propose economic growth objectives for the upcoming year within the range of 4.5% to 5.5% during the annual Central Economic Work Conference of the ruling Communist Party. Monetary stimulus is expected to play a more limited role as the central bank remains concerned about a widening interest rate differential with the West.

Regarding the war in the Middle East, markets welcomed the ceasefire agreement between Israel and Hamas in order to free a number of the hostages. As the war doesn’t extend to neighboring countries, markets seem to stay calm.

Equity markets continued to rise in Europe and the United States, while the U.S. dollar fell for a second week in a row. Of course, because of Thanksgiving, volatility was low. Bond yields were almost unchanged with the U.S. 10-year yield closing the week near 4.47%. On the commodity market the picture was mixed after gold strengthened while oil suffered losses. Finally, Bitcoin and most cryptocurrencies stopped the bullish rally, remaining practically unchanged.

The current week will be dominated by economic announcements relative to the United States. The third-quarter GDP announcement as well as personal consumption expenditures stand out. Markets also will pay attention to Fed chief Jerome Powell’s speech next Friday. Major announcements on manufacturing are also expected for China and the focus will also be on the meeting of OPEC member states on Thursday.

SP500

The US SP500 index closed last week with bullish trends, at 4,559 points and profits of around 1%. The volatility was relatively low as the U.S. markets were closed on Thanksgiving Day and early closing in the next day. SP500 was able to perform the fourth consecutive bullish week despite the hawkish tone of the FOMC minutes. While the Fed has not ruled out the possibility of additional interest rate hikes, the market appears to have a different viewpoint. The prevailing narrative is still favoring the idea of a soft landing. In the week ending November 18, initial jobless claims came in at 209K, significantly beating the consensus of 225K. Durable Goods Orders experienced a more significant decline than anticipated, dropping by 5.4% in October instead of the expected 3.1% decrease. On Wednesday, the Michigan Consumer Sentiment Index for November was reported at 61.3, surpassing the consensus of 60.5 and the previous month’s 60.4 reading. Finally, on Friday the PMIs had mixed signs for the U.S. economy with a mild decline in manufacturing (49.4 vs 50 in the previous month) and a rise in services (50.8 vs 50.6). The prevailing scenario for the first rate cut by the Fed is in the session of next June according to the FedWatch tool. It is a good scenario for the markets as long as the economic data remains decent and a recession case is avoided. However, we may see a correction after four strongly profitable weeks and a total performance of more than 10% and that’s why we prefer short positions this week. We need also to see how the important announcements of the current week will affect the markets.

DAX30

The German DAX40 index was bullish last week, closing at 16,029 points, with profits close to 0.70%. DAX40 carries on an uptrend rally that has led it to exceed 16,000 points for the first time since the end of August. This result comes along with a negative outlook for the German economy, according to the latest economic data. The German GDP for the third quarter of the current year dropped by 0.4% (YoY) and the business climate & expectations indicators were well below expectations. There was some better news at the beginning of the week regarding the PMI indicators and the 5-yar German bond auction where the yield fell from 2.71% to 2.56% but it could not justify such a strong rally. Most likely, markets assess that the interest rate hike cycle is over and that during the next year, there may be some cuts so a strong recession scenario will be avoided. Profit-taking and economic results may cause some corrections so we may try short positions this week. Inflation and retail sales are the most important announcements for the German economy this week.

FTSE100

The British FTSE100 index moved downward last week, closing at 7,488 points, losing about 0.20%. FTSE100 underperformed the major stock indices in the USA and Europe and it could not even have a positive weekly sign. Recent fiscal announcements, such as tax cuts, have played a significant role in shaping the economic outlook for the UK. Also, the Office for Budget Responsibility has revised growth forecasts downward and increased inflation projections. PMIs and consumer confidence had better than expected results but were not able to change the negative climate. Bank of England Governor Andrew Bailey in an interview with the website ChronicleLive published today, said that achieving the central bank’s 2% inflation target will be a “hard work”, citing that much of the recent decrease is attributed to the normalization of the surge in energy costs observed last year. “The rest of it has to be done by policy and monetary policy,” Bailey said. We may try short positions this week as well.

Gold

The previous week was bullish for gold, with the next month’s futures closing at $2,002.20 and profits of more than 1%. Gold prices returned above $2,000, something that we had also seen a few weeks ago. The surge in value primarily occurred in response to a declining U.S. dollar, driven by speculation that the Fed could halt its series of interest rate hikes. There is a growing expectation in the market that the Fed might consider implementing rate cuts as early as May or June next year. Last week, there was a mild increase in U.S. bond yields as investors were actively assessing the outlook for interest rates and the overall economic situation but since it was a small change, the effect on gold prices was also small. The trends in the gold market for the current week are expected to be shaped by continuous assessments of interest rate developments and the dynamics of bond yields. Furthermore, in the current week, there are opportunities for additional insights into the economy through upcoming data releases on GDP, personal consumption expenditures, and PMIs. Additionally, several members of the Federal Open Market Committee (Goolsbee, Waller, Bowman and Jerome Powell on Friday) are expected to deliver scheduled speeches. Although the week opened with a strong uptrend, we may try short positions.

US Oil

Last week was bearish for oil with the next month’s futures closing at $75.19, with losses of 1.20%. For the fifth consecutive week, the crude oil market witnessed a decline, even if in the last two weeks the losses were significantly milder. The upcoming OPEC meeting, which has been moved from November 26 to November 30, continues to be the primary focus for market participants. There is considerable anticipation regarding OPEC’s determination on potential production cuts for 2024, and this decision holds substantial consequences for oil prices. As per the demand, markets assess the results from China and USA. China has shown signs of economic decline during the last months expressed in deflation and decreasing activity in manufacturing. Also, the higher-than-expected inventories recently released in the USA cause further concerns regarding the demand. In the current week, all eyes are on the OPEC meeting, with its results anticipated to have a substantial impact on oil prices. Economic announcements, mostly from the USA will also have a critical role. The downtrend is strong and we may follow it with short positions this week.

EURUSD (Euro – US Dollar)
Last week was bullish for EURUSD as it opened at 1.0907 and closed at 1.0933. The upward trend of the exchange rate that has been going on for about a month and a half continued last week after the U.S. dollar continued to weaken. Markets have formed the view that neither the Fed nor the European Central Bank will make any new interest rate hikes. However, expectations that a rate cut by the Fed will begin earlier than the European Central Bank is weakening the U.S. currency. Christine Lagarde in a speech, tried to keep low tones saying that the battle with high inflation is not yet over but she did not convince the markets that further actions should be expected. The European economy remains under pressure although last week’s economic results were somehow encouraging. Consumer confidence was seen recovering while PMI indicators continued to be below 50 but were announced above market expectations. Announcements of GDP and personal consumption expenditures in the United States and inflation in the Eurozone will dominate this week. We may try buy positions this week too.

GBPUSD (Great Britain Pound – US Dollar)

Bullish was the last week for GBPUSD, which opened at 1.2444 and closed at 1.2596. This bullish trend was clearly rooted in the weakening of the U.S. dollar, especially after the Fed announced its minutes last Tuesday. Sterling also strengthened for two main reasons: statements from Bank of England executives and positive economic results. Many members of the Bank of England made mixed signs last week but it was dominated by the speech by Bank of England chief Andrew Bailey who said it is too early to consider rate cuts, as some components of inflation remained far too high and as wage growth continues to rise sharply. On Friday, the PMI indicators for the United Kingdom were announced, well above market expectations while impressive was the fact that services and the composite indicator, both exceeded 50. The UK has no financial results to announce this week and so the focus will be on the announcements of the United States. We prefer sell positions for the current week.

USDJPY (US Dollar – Japanese Yen)

USDJPY was slightly bearish last week, opening at 149.59 and closing at 149.42. The week was split in two since by Tuesday there was a strong downtrend that led the pair up to just above 147 but from then on began a strong upward reaction that balanced the week. Due to the lack of economic data and results for the Japanese economy through Friday, the exchange rate moves were mainly driven by the movements of the U.S. dollar but also by the course of bond yields. Japan’s reported inflation was a bit increased but below market expectations, meaning there was no urgent call for immediate action at the Bank of Japan. Japan’s industrial output and the unemployment rate will be announced this week, but still, these factors do not seem capable of changing things. So, the U.S. dollar and the bond yields are expected to dominate again especially due to major announcements in the United States. Sell positions is our selection for the current week.

EURJPY (Euro – Japanese Yen)
Bullish was last week for EURJPY which opened at 163.26 and closed at 163.48. Without the euro showing any significant recovery trends, the exchange rate continues to move upward in price areas that are at multi-year highs. The Bank of Japan, which continues its very loose monetary policy, inflation in Japan, which does not seem to cause concern, and improved economic sentiment, which pushes some investors away from safe havens like the yen, are the main reasons for the weakening of the Japanese currency. This week the announcements are dominated by inflation and unemployment in the Eurozone and industrial production and unemployment in Japan. We may try sell positions.

EURGBP (Euro – Great Britain Pound)

Last week was bearish for the EURGBP, as it opened at 0.8751 and closed at 0.8673. The positive economic results that the UK economy showed last week were certainly one reason for this downward movement in the exchange rate. A bigger role, however, was played by statements from Bank of England executives and mainly Andrew Bailey, who were quite hawkish after stressing once again that the problem of high inflation remains and that there should be no complacency. The European economy has economic announcements this week while no important news is expected for the UK economy. The euro seems stronger so we may try buy positions this week.

USDCAD (US Dollar – Canadian Dollar)

Bearish was the last week for USDCAD, as it opened at 1.3708 and closed at 1.3630. Although the U.S. dollar weakened last week, the exchange rate was unable to recover upward, mainly due to weakness in the Canadian dollar. Inflation was reported in Canada last month at 3.1%, down sharply from the previous month’s 3.8% but also lower than the 3.2% markets had expected. So, markets have suggested that the Bank of Canada will be mild enough in the coming period without new interest rate hikes and there may even be reductions in the coming months. Another reason for the weakening of the Canadian dollar was the continued fall in oil prices as oil is the country’s main export commodity. In addition to major announcements by the United States this week, Canada also will announce GDP and the unemployment rate. We may try buy positions this week.

USDCHF (US Dollar – Swiss Franc)
The USDCHF had a downward course last week as the opening price was at 0.8847 and the closing price was at 0.8817. This fall in the exchange rate must be attributed mainly to the weakening of the U.S. dollar since the Swiss economy had nothing significant to contribute. Switzerland’s imports, exports, and trade balance showed no significant changes compared to the previous month. The drop could have been bigger, but improving economic sentiment internationally does not favor safe havens like the Swiss franc. This week contains important announcements for the United States as we have seen above but Switzerland will also announce GDP and we’re keen to try sell positions this week.

AUDUSD (Australian Dollar – US Dollar)

Bullish was the last week for AUDUSD, which opened at 0.6504 and closed at 0.6579. The exchange rate continued upward for the second week in a row after weakness in the U.S. dollar failed to reverse the trend. In contrast, the Australian dollar strengthened from the middle of the week onwards, due to speeches by Bank of Australia chief Michelle Bullock. Michelle Bullock said that more essential monetary policy tightening is the right response to demand-driven inflation. She also said that it would take time to get demand-driven inflation back to the 2-3% target. Those statements were interpreted as hawkish by markets, boosting the Australian dollar. In the week, investors will look to the announcements of the United States and China as the economy of China and Australia is closely linked. If the U.S. dollar keeps on weakening, the AUDUSD will be able to move higher so we may try buy positions this week.

Bitcoin

Last week, Bitcoin was slightly bullish and closed at $37,460 with marginal profits of 0.10%. The price of Bitcoin during the week was above $38,400, reaching a level not seen in eighteen months, propelled by a consistent increase in demand. Factors such as expectations of the approval of a spot Bitcoin ETF by the SEC and an upswing in demand from significant Tether holders drove the upward momentum in Bitcoin price. Regarding, Bitcoin ETFs, the crypto markets still have the perception that the SEC will approve the applications. According to information from Santiment, a company that provides community insights, on-chain, social, and dev data, the top 100 Tether addresses increased their holdings by $1.67 billion in the past six months. It is considered as a proof of trust in cryptos. Important news for the cryptos also came from Binance. Binance CEO Changpeng Zhao resigned and admitted guilt in violating U.S. anti-money laundering regulations as part of a $4.3 billion settlement, resolving a lengthy investigation into the world’s largest cryptocurrency exchange, according to prosecutors on Tuesday. However, numerous legal professionals indicated that the resolution was favorable for CZ, preserving his substantial wealth and permitting him to maintain his ownership stake in Binance, so markets welcomed his actions. However, during the weekend we saw some bearish pressures. Two cryptocurrency platforms associated with well-known digital entrepreneur Justin Sun were hacked, resulting in potential thefts amounting to an estimated $115 million according to CNBC. This fact reminds us that serious issues in the crypto industry still remain. Technically speaking, there is a Doji candlestick pattern on the Bitcoin weekly chart. A bearish breakout below $35,650 could accelerate a correction. We may try short positions this week.

IMPORTANT DISCLAIMER

The information in this report is of a general nature only. It is not a piece of personal financial advice. It does not take into account your objectives, financial situation, and personal needs.

a-Quant is not responsible for your actions and recommends you contact a licensed financial advisor before acting on any information contained in this general information report.