Stocks gain despite Middle East risks; USDJPY probes swing level

Summary:

• European indices recoup recent losses

• US benchmarks back near record highs

• ISM Services tops estimates

• Technical alert: USDJPY

Despite the continued worry of more problems for investors on the geopolitical front, stock markets on the whole are set for a good day. Indices dipped in the pre-market trading on reports that Iran considers 13 retaliation scenarios against the United States but this drop was completely erased and most of Europe is trading higher on the cash close with the DE30 adding 0.5%. 

According to data released by VDA automotive group, German car production plunged 9% YoY in 2019 and has reached the lowest level since 1996. Details show that the decline can be ascribed to lacklustre foreign demand as car exports dropped to 3.5 million, a decline of 13% YoY. On the other hand, new registrations in Germany reached 3.6 million, an increase of 5% YoY. This was the biggest increase since 2009. Details do not bode well for the German economy as it is driven by exports. Moreover, the situation could get even worse as carmakers need to adapt to new emission rules this year.

The reasons for the weakness in the past couple of sessions are well versed with concerns surrounding rising tensions in the Middle East causing some disconsternation for investors. However, with both Oil and Gold pulling back from their recent peaks the markets are seemingly attempting to look through the clear and obvious threat of further military conflict and for now that is keeping indices supported. The US500 once more found support around the 21 EMA and ended Monday’s session back above the 8 EMA. The uptrend remains in tact for now as long as the recent lows of 3206 aren’t breached with the record peak of 3263 a level to be aware of above.

The most widely followed indicator on the US service sector has come in better than expected with the ISM non-manufacturing PMI for December beating consensus forecasts with a print of 55.0 (54.5 exp and 53.9 prior.) Notable components of the report were as follows:

• Employment 55.2 vs 55.5 prior

• New Orders: 54.9 vs 57.1 prior

At the same time US factory orders for November came in at -0.7% vs -0.6% exp. +0.3% prior. On balance this is seen as slightly positive and certainly a far better reading than the manufacturing equivalent which fell to its lowest level in a decade for the same month. The initial market reaction has been mildly positive with the US dollar, US yields and stocks rising while Gold has pulled back from its daily high.   

A technical overview of the USDJPY can be viewed here.