China outperforms Asia

The pullback in equities at the end of US trade has resulted in a subdued performance in Asia.

Most markets are struggling with the exception of China where the Shanghai Composite and the Hang Seng are charging higher.

Meanwhile the ASX 200 and Nikkei are modestly weaker, but have both come off their lows of the session. With US markets in for a shortened trading week, global markets remain in a holding pattern with limited reaction to some of the economic releases we have received.

Moves in the FX space are also disjointed at the moment with no dominant risk theme in place. The euro has really taken off in Asia with strong gains against the yen and the USD. There is no indication yet as to what’s driving the move, but it has set the pace for equities which are now starting to gain some momentum.

Pound poised for a short-term rally

European markets are also facing a mixed start with the DAX and CAC mildly firmer while the rest of the region is pointing lower. There are no major economic releases on the eurozone calendar today, but investors will continue to watch the bond markets after a move higher yesterday. There will also be an Italian Senate vote which could see former PM Berlusconi unseated and result in some moves in Italian yields. 

A standout was GBP/USD, which gained ground despite BoE Governor Carney saying 7% unemployment was not an automatic trigger to tighten policy. There seems to be a general consensus that the UK economic recovery will continue, and as a result, every piece of data will have to impress to keep the pound bid. Later today we have revised GDP and business investment due out. The price action on GBP/USD is getting increasingly intriguing after trading back above 1.62 overnight. The pair traded as high as 1.624 which is just shy of October highs at 1.626. Cable rallied to a high of 1.638 and that will be the next level to look out for once October highs are cleared.

For the rest of the week we have the BoE financial stability report along with BoE Governor Mark Carney’s speech to look out for on Thursday. Once again, any hawkish comments or further signs that the UK economy will continue to improve rapidly will push the pair higher.

US data drop in focus

Heading into the Thanksgiving holiday, the US has a fairly busy economic calendar. In the US we have durable goods orders, Chicago PMI and unemployment claims due out. The market is looking for unemployment claims to show a rise to 331,000. However, after bumper unemployment claims reading last week which took the 4-week average down to 339,000, there will be plenty of optimism that we could see this trend of an improving jobs market continue. We will also get consumer sentiment and inflation expectations readings along with crude oil inventories.

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