More records for US stocks; GBP set for large weekly loss

Summary:

• New all-time highs for US indices

• Final GDP for Q3 comes in at 2.1%

• Upbeat session for European stocks 

• CAD falls on soft data

• Pound bounces but still set for sizable weekly loss

The final US session of the week has a couple data releases of note with the first coming out as expected with a growth reading in line with forecasts. For the 3rd quarter an annualised GDP final print of 2.1% was as expected and continues to point at steady if not spectacular growth in the world’s largest economy. At the same time the Fed’s preferred inflation gauge showed an increase of 2.1%, with the core PCE Q/Q also matching forecasts.

US stocks are on track for another good week with the markets continuing to push higher and the US500 has made another record peak this afternoon in moving above 3220.  US stocks have extended their run higher and there is still no signs of any bearish reversals. Those who follow the RSI may note some possible bearish divergence but unless there’s a reversal in price then the market remains in its current mode of a melt up. 

DE30 underperformed significantly this week but managed to halt declines at the support zone ranging around the 13175 pts handle. A point to note is that this zone is also marked with the lower limit of the Overbalance structure. The German index bounced off this hurdle over the night and rallied. Upward moved was halted slightly below the 13300 pts. The index is pulling back at press time but in case bulls manage to regain control over the market, one cannot rule out a test of the resistance zone ranging around the 13310 pts. This resistance also marks the upper limit of the Overbalance structure therefore a break above it could hint at reversal of short-term trend.

In the FX space there was a sharp move lower in the Canadian dollar following the release of some softer than expected consumer spending figures. For October retail sales came in at -1.2% vs +0.5% expected, the worst monthly performance since November 2018. The prior reading was -0.1%. The weakness was also seen in the core reading with ex autos printing -0.5% vs +0.2% expected and +0.2% prior.  

What a difference a week makes. This time last Friday following the crushing election victory for the Conservatives the pound was trading close to a 7-month high against the US dollar and near a 29-month peak vs the Euro. Fast forward 5 trading days and sterling is on track for its worst weekly performance in 2 years, with declines in excess of 2% seen against all its major peers. The news being attributed to this change of fortunes is the promise from PM Johnson to end the transition period at the end of next year, but in truth the reasons behind the selling are a bit more nuanced. There’s an element of a buy-the-rumour-sell-the-fact sort of move that seems to have played out while the widely accepted belief that the outcome would mean smooth sailing ahead now looks misplaced to say the least.