FTSE in festive mood

Volumes may be thin, but sentiment is upbeat as the FTSE ratchets up its fourth consecutive day of gains, outperforming the German DAX and helping to put European indices in good stead for an end-of-year rally.

A short trading day tomorrow could see even weaker volumes, and this can often allow markets to drift upwards without any real reason.

Risk-on in European markets

The defensive sector has failed to attract much interest, as markets currently embrace a risk-on attitude. Kingfisher shed 0.7% and inhabited the bottom rung of the UK blue-chip index.

The Apple/China Mobile deal has seen chip designer ARM Holdings rise 2.5%. Given that China Mobile will now officially carry the iPhone, one can expect to see increased demand for its chip technology.

If consumer confidence has really returned, then cruise ship operator Carnival is seeing early benefits. Broker upgrades and renewed expectations that the stronger pound will parlay into an uplift in foreign holidays has pushed the company to the top of the FTSE 100 today.

British services company Serco, fresh from having to repay £68.5 million after overcharging the Ministry of Justice for electronic tagging last week, has been given a reprieve today. The stock gained 2.57% on reports that the Australian government had extended Serco’s contract with its border-protection department to run 17 detention centres down under. The company also received an additional lift owing to a broker upgrade.

Optimism boosts US Markets

US investors were greeted with a higher market opening today, as once again optimism abounds that the US is cementing its recovery. The Apple deal has also served to give a boost to sentiment, as the deal broadens the company's reach substantially. The share price, which had already gained 3.3% in pre-market trading, has faded at $575 and proved unable to breach the highs last seen on 2 December.

Consumer spending outpaced expectations, increasing 0.5% and growing at its fastest pace since last June. One could question whether energy bills resulting from the recent cold spell have positively impacted this data. Personal income rose by a mere 0.2%, which was less than the 0.4% gain consensus.

The Dow Jones has surpassed its recent record high, pushing up to as much as 16,310 before settling back below yet another milestone metric. The index is currently trading at 16,282, up 0.3% on the day.

UK rate-hike suggestions

Comments from Business Secretary Vince Cable that the Bank of England could hike interest rates in order to curb the property boom in London and the south-east were insufficient to propel sterling through the $1.64 level. His remarks are not so far-fetched. The UK downturn is expected to be left behind by the third quarter of next year, and GDP is predicted to exceed its pre-crisis peak at that point. It may well be time for Mark Carney to consider a degree of pro-action rather than reaction, in light of the better economic data recently as well as the down-tick in inflation levels.

The euro took a quick look above the $1.37 level, but has so far failed to see additional bids through this point. Technically the view is that, despite a stellar year for a currency that was deemed bound for failure only two years ago, the double top at $1.38 (and highs of this year) is setting the scene for the euro to exit stage left against the US dollar. Stateside macro data is expected to trump the mixed fiscal and monetary outlook for the eurozone.

Predictions from Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, suggest the central bank will begin raising its target policy rate in early 2015, while the ECB is still considering the potential for negative base rates. Should this come to pass, it could also play in to a weaker single currency against the dollar.

Gold clings on

Gold looks set to hang on to the $1200/oz level despite the stronger greenback. This tends to put a short-term spin on some upside for the precious metal. Any extended drops below this year’s low of $1180/oz would disqualify this and would probably trigger an avalanche of stop-losses, which could only exacerbate the potential downside.

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