Business

Markets settle down, for now

Currency markets are settling down
Currency markets are settling down Currency markets are settling down

MARKETS settled down somewhat last week following the big moves in the aftermath of the US elections, but the trends evident post Trump’s win remain very much in place.

The dollar retained its firm tone, most notably against the yen and euro, though there is strong support for the single currency around the €/$1.05 level, which is holding for now.

Sterling has also continued to recoup lost ground against the euro, helped by a more conciliatory tone from the UK prime minister on the Brexit negotiations and her desire to avoid a “cliff-edge” on exiting the EU.

Upward pressure remains on US bond yields, while stock markets continue to gain ground.

Politics is likely to continue to shape markets in the period ahead, with the upcoming Italian referendum on political reform (December 4) the next hurdle.

Opinion polls suggest the government will lose the referendum, which may lead to the resignation of Prime Minister Renzi. It is unclear what would happen after that. A new government might be formed, avoiding an early general election.

Markets would be really worried if there are elections in Italy next year as it could open the door for euro-sceptic parties to enter government.

Growing political uncertainty in the eurozone is likely to remain a significant headwind for the single currency for some time.

The global macro calendar for the coming days will provide plenty to interest markets. In the US, we get the key release of the month, the November employment report.

Friday’s non-farm payrolls are forecast to record a solid 174,000 rise, slightly up from October’s 161,000 result. At the same time, the unemployment rate looks set to have held at 4.9 per cent, off the back of on-going strong growth in the labour force.

Meantime, year-on-year growth in average earnings may edge up further to 2.9 per cent, which would represent its strongest rate since May 2009.

US core PCE inflation is forecast to have remained at 1.7 per cent in October, below the Fed’s 2 per cent target.

Meantime, a further solid increase in personal consumption is anticipated in October.

The US schedule also features some survey data for November, including the manufacturing ISM. It is predicted to edge up slightly, while remaining consistent with only modest growth in the sector.

In terms of monetary policy, the latest Fed ‘Beige Book’ will provide an update on the economy’s performance ahead of the much anticipated upcoming FOMC meeting (December 13-14) at which the committee is expected to hike rates.

There are a number of important releases in the eurozone, from the perspective of informing ECB policy. Flash HICP inflation for November is due. It is forecast to edge up to 0.6 per cent, as the drag from low energy prices abates further.