Asian stocks record a positive day as trade tensions may continue to ease further, boosting the outlook for global economic growth. President Trump also informed markets yesterday that China has agreed to restart purchases of American Soybeans and reduce the tariff on American car imports. China’s government and senior policy advisers are drafting the replacement for Made in China 2025 which would allow greater access for foreign companies, according to the Wall Street Journal.
In Tokyo, the Nikkei rose 1%, Hong Kong stocks have jumped again, outperforming others across Asia. The Hang Seng Index rose 1.2%, and Australia’s ASX 200, which also gained more than 1% yesterday, ended the day just 0.1% higher.
European stock markets started the day in quite note as traders are watching the Brexit and Italy related news. Italy’s Finance Minister Tria is scheduled to travel to Brussels for budget talks with the European Union, having proposed yesterday a revised budget deficit target of 2.04 percent. The spread between the 10-year Italian government bond yield and its German counterpart could continue to narrow in the near future.
In forex markets ,GBPUSD rallied from 20 month lows at 1.2475 to 1.26 after May survived a party no-confidence vote. The pair has reached the first resistance that we mention in yesterday’s report at 1.2667, trading above the 50h and 100h moving averages thus giving a sign of life for the bulls, the 200h moving average is still a strong resistance point at 1.2682. High volatility is expected also for today as Brexit-related headlines might continue to influence sentiment surrounding the Sterling and infuse volatility across GBP forex pairs.
The upbeat mood is also helping to lift EURUSD early morning at the daily high 1.1393. The pair has regained the bullish momentum after it crossed successfully the 200h moving average. Draghi will set the tone for the pair today as the ECB is expected to end its EUR2.6 trillion stimulus package and communicate next growth and inflation forecasts. Italy budget crisis is a risk for the ECB rate decision and might affect the commitment to maintain low interest rates until summer 2019. Analysts at Rabobank offer a sneak peek at what to expect from the final European Central Bank (ECB) monetary policy decision
“The ECB will maintain the risk assessment of “broadly balanced”, and recent solid wage data will probably be Mr. Draghi’s key argument when selling the ECB’s economic outlook. Forward rates guidance is likely to remain unchanged at “through the summer of 2019”, the end of net asset purchases is likely to be confirmed, reinvestment modalities will highlight flexibility, and there will be no explicit maturity extension (i.e. no Twist).
A new capital key will likely only be applied to asset re-investments, there will be no active re-balancing of the ECB’s portfolio, and only minor changes to the forward guidance, with no provisional to-be end-date specified. In terms of LTROs, they expect no announcement in December, but potential hints to pave the way for these in 2019 Q1.
Put another way, ECB monetary policy is now as fantastically complicated as in China; but put more simply, they are going to stop QE with CPI well below target, growth slowing, and politics looking messy, and then keep their fingers crossed it isn’t a huge policy error, leaving EU citizens and markets to cry “Despicable them!”
1.1350 is the immediate support for the pair and 1.1325 is the next point, of previous week support the 1.1305 is the more important one as it formed a double bottom the past two weeks. A clear break below that area could trigger more bearish pressure testing 1.1250 area. On the flip side, bulls are looking for the 1.14 region where the pair has already rejected three times the last two weeks. 1.1445 is the December high until today.
The policy statement is due at 1:45 p.m. Central European Time, or 7:45 a.m. Eastern, with Mario Draghi’s news conference at the ECB’s Frankfurt headquarters set for 2:30 p.m. CET, or 8:30 a.m. ET.