US GDP estimates proved yesterday, that the US economy is still moving in the right direction, but the PCE rate was a slight disappointment. Conservatives continue to lead the way in the polls and US has a day off, as they celebrate Thanksgiving.
Yesterday, the day was filled with economic data releases from the United States. It started off with continuing jobless claims coming out better than expected, at 1640k, versus the 1690k forecast. Initial jobless claims were also at their best, beating expectations. Core durable goods number on a MoM basis for October came out 3 times higher than the expected +0.2%, at +0.6%. One of the main sets of data, which was in focus was the US preliminary GDP number on a QoQ basis for Q3. The figure managed to beat not only the forecast of +1.9%, but also the previous reading of +2.0%, coming out at +2.1%. Although the number was decent, it would still need to try hard to get back to the highs seen in 2018, which were balancing near 3%. Real Consumer spending for Q3 stayed untouched, at +2.9%.
One and a half hours later we received another set of data from the US, which was also waited in anticipation and that was Fed’s closely-monitored core PCE rate for October. Fed has an objective set out at 2% and it would like to see the PCE number to be at that level, together with other inflation metrics. October’s core PCE on a YoY basis came out with a slight disappointment, as it fell by one tenth of a percent below the previous and forecasted numbers of +1.7%. The MoM number also missed its expectation by one tenth of a percent, showing up at +0.1%. These lower numbers push away the probability of a rate hike by the Fed, as it would prefer to see inflation closer to 2% before any consideration of rate-hike could take place. Even the headline YoY inflation is still below 2%, at +1.8%.
The MoM pending home sales and personal income were also seen showing up in the red, missing their forecasts. But at least the MoM personal spending managed to appear in line with its expectation, at +0.3%, which is slightly higher than the previous month’s +0.2%. Spending continues to stay in the positive zone. Last time it was seen below zero was when we received the reading for December, 2018. For now, this satisfies the Fed, although slightly higher levels would be appreciated even more.
But still, the data was not all that bad and the market ignored some of the disappointing numbers, as equities continued to rise, hitting fresh new all-time highs. The DJIA, the S&P 500 and Nasdaq have rallied to levels that were not seen before. A big part of the current “risk on” sentiment is built by positive headlines, which are coming out from the China – US trade negotiations.
Yesterday, UK also fell into the spotlight, when it released the long-awaited YouGov MRP model results on who is the current leader in the election race. But, as it was widely expected, the Conservatives are still way ahead of their closest rival, the Labour Party. The British pound was one of the main gainers yesterday, as traders and investors saw the Tories leading the polls – a better outcome for GBP. This is because the market at least understands a bit more on what to expect from the Conservative government, whereas if Labour would take the majority, this would create more uncertainty, as the whole mess with Brexit would take a new spin and it would be less clear how the UK-EU problem would be dealt with.
After trading inside a range for about a month, GBP/JPY broke the upper bound of it and is now showing signs of willingness to move further north. The aforementioned range was roughly between the 139.36 and 141.50 levels. As long as the rate continues to balance above the upper side of it, we will remain somewhat positive and target slightly higher areas, at least in the short run.
The next potential resistance zone to consider could be near the 142.18 hurdle, which is the high of May 14th. The pair might stall around there for a bit, or even correct back down. But as long as it stays above the upper bound of the aforementioned range, we will continue looking north, at least for a while more. If GBP/JPY rises again and overcome the 142.18 barrier, this could clear the path to the 142.87 level, marked by the high of May 13th.
Alternatively, if the rate falls back inside the range, we will consider a possible slide within the range only. But in order to abandon the bullish case in the short run, a drop below the 140.90 zone would be needed. This is when we will aim for the next potential support hurdle, at the psychological 140.00 mark, a break of which might lead the rate to a test of the lower bound of the range, at 139.36.
The S&P 500 managed to hit a new all all-time high yesterday, before the closing bell. Today, the US equity market is closed, so the only movement on the S&P 500 we may see, will be in on the cash index, which could mainly be influenced by the movement in the European equities. From the technical side, the S&P 500 is still balancing above its short-term tentative upside drawn from the low of October 23rd. Given that the cash index is quite extended to the upside, we may see a small correction lower, before another leg of buying.
If the price falls below the 3142 hurdle, marked by yesterday’s low, this could lead the index to the 3128 support area for a quick test. Slightly below that area runs the aforementioned upside line, which may provide some additional support. If so, the price could rebound and travel back up, possibly testing the 3142 barrier again, but this time from underneath. If that barrier fails to withhold the buyers, its break could lead the S&P 500 to yesterday’s high, near the 3155 level.
On the other hand, if the previously-mentioned upside line fails to hold and breaks, and the price slides below the 3119 support area, marked by the high of November 20th and near the low of November 25th, this could open the door for further declines. We will then examine a test of the 3110 obstacle, a break of which could send the cash index to the 3091 level, which is the low of November 20th.
In terms of today’s events, the economic calendar looks very quiet. It is Thanksgiving Day in the US, so their equity markets are closed for the day. The main focus, during the European trading session, will fall on the eurozone, as it presents with their business climate and consumer confidence figures. The expectations there are for some slight improvement. Given that today is a relatively quiet day economic data-wise, if those numbers come out better than expected, we could see the euro strengthening slightly. A bit later in the day, Germany is set to provide us with their preliminary MoM and YoY inflation numbers for the month of November. If the MoM is believed to have fallen from +0.1 to -0.6%, then the YoY reading is forecasted to show up at +1.3%, which is a slight increase from the previous +1.1%. We do not expect this data to be market-moving.
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