The first week of December will not have left traders full of Christmas spirit. The reaction on Thursday of asset prices to the slightly disappointing announcement from the ECB, gave the impression of traders quickly trying to cover positions. The euro rallied almost 3% against the US dollar; the dollar lost about 2% against its basket of other currencies. Equity prices in Europe fell over 3%. Equities in the US followed suit later in the day, but then bounced back sharply on Friday as traders then looked to cover their short positions.
The US dollar index was close to breaking the 100 mark, before the ECB announcement. Should the dollar fail to break that technical level, this may help improve some of the negative sentiment to the resource sector. Commodities remain under pressure, however to underline this point, as the dollar sold off on Thursday the oil price rallied over 3%.
At the end of the week the major equity indexes in Europe finished down between 2 and 3pct, in contrast the strong bounce in US equities on Friday meant the S&P 500 eked out a small gain in the past 5 days. The Vix fell on the week despite Thursday’s volatility, possibly suggesting investors remained comfortable with the Fed possibly raising rates in 10 days time.
The AAII investor sentiment index, which measures the percentage of individual investors who are bullish, bearish, and neutral on the stock market for the next six months, records that nearly half believe the market will be approximately where it is.
Last week was dominated by macro events, aside from the ECB. For choice the US economic data did nothing to suggest the Fed should be looking to raise interest rates, aside from the unemployment rate remaining close to their target. This is a quieter week in the US; the focus will be on Friday’s retail sales. Fed member Bullard will discuss his views on the state of the US economy at the Ball State University on Tuesday.
This week the focus will turn back to the Bank of England as we get the release of the minutes from the last meeting of the Monetary Policy Committee meeting. We also hear if Ian McCafferty remains the lone voice when it comes to voting for a rate rise.
European finance ministers meet on Tuesday to discuss the state of the banking system. Other than that it’s a quiet week in Europe. On Tuesday we get the latest inflation and factory price data for China. As is the case for most of the major economies currently, expectations are for inflation in the Chinese economy to remain benign.