Pre-Thanksgiving rally comes early

Indices are storming ahead this afternoon, as dovish central banks once again intervene. Heading into the close the FTSE 100 is up 70 points. 

Japanese flag
Source: Bloomberg

China awakens mining sector

Baton-passing is all the rage at the moment among central banks. When the Federal Reserve retires from easing, the Bank of Japan takes over. Now, we have the sight of a handover in the space of a morning, as Mario Draghi hints at European Central Bank quantitative easing and then steps back to allow China to cut interest rates. 

Either of these would have boosted stock markets, but both taking place on the same day as options expiry meant that the morning became one of high drama. Crucially for the FTSE, China’s move awakened the mining sector, with today’s rally in raw materials stocks showing just how much the sector had held back the FTSE rally since mid-October. Even gold and silver miners were on the march, as the yellow metal pushed back through $1200. 

Meanwhile in Europe, markets raced higher on hopes that continuing signs of deterioration and the big gap between the ECB’s December and January sessions will prompt the governing council to act. With the data moving his way, Mario Draghi is likely to become increasingly confident that he can sway other members to act – even in the face of German opposition.

US indices see all-time highs

The market seems to be developing a momentum all of its own, as buyers that missed the rally are spooked into action as fresh all-time highs are seen in US indices. It looks like the pre-Thanksgiving rally has come early, although with holidays looming traders could be forgiven for wanting to eke out some more points at the beginning of next week.

Even so, the feeling that a new pullback is due is gathering strength – it certainly would take a lot of the froth out of the market, and crucially allow more investors chasing good year-end figures time to get back on the bus. Before then, however, we need to get the US holiday out of the way, and with plenty of data on the ticket in the first three days of next week equities could continue to gain ground for the time being. 

Gold clears $1200

A breakout in gold has seen the price clear $1200, helped on its way by China’s decision to cut interest rates. Putting more money into the hands of Chinese consumers is bound to give a lift to gold prices, while ongoing reports that the Kremlin is stacking up on gold reserves has emboldened physical buyers. 

Meanwhile the ongoing weakness in oil was nicely illustrated by the inability of the price to hold gains from the morning session. Sellers have been waiting for a rally like this to leap back on the declining trend, and the morning bounce provided the ideal opportunity.

Euro bulls step in

A near 1% drop in the euro still shows that Mario Draghi’s jawboning works well when the time comes to push EUR/USD down. Having seen the $1.24 level probed last week, euro bulls were not keen to let another test occur and stepped in decisively. Expect to see more action in this area in the coming week, as sellers aim to try their luck once again. As the week winds down there is a continuation of the pullback in USD/JPY that began yesterday. With so many on one side of this trade, booking of profits is likely to continue, sending the pair further towards ¥116. 

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.