A rip-roaring non-farm payrolls number and consumer sentiment index last Friday maintained the upward impetus in US stocks and will probably be enough for US equity indexes to see out the year at record highs.
US payrolls at +266,000 jobs for the month of November and an unemployment rate falling to 3.5%, as well as the University of Michigan consumer sentiment gauge hitting 99.2 for December versus 97.0 for November will definitely give people reasons to be cheerful.
But as ever, there is a caveat to great news! In simple terms, it is called reversion to the mean. So, while we may take the positives out of this exceptional employment report, we should be on guard for a revision downwards in the month of December.
Evidence to support this assertion will be found in last Friday’s Canadian employment report, which failed to impress as the unemployment rate rose and job creation fell. This after two stellar reports in the last 3 months!
To this week and the major event is the UK general election on Thursday. The British pound has rallied as the Conservative party with its “Get BREXIT done” mantra has taken a commanding lead in the polls. A majority government can push through legislation and remove uncertainty from the market.
From the US, the major announcements this week revolve around inflation, interest rates and retail sales. Inflation is expected to rise to 2.0% Y/Y for November (from 1.8%) when it is announced on Wednesday. US Interest rates are expected to remain constant in the range of 1.5%-1.75% when they are announced later in the day and the World awaits the follow-up speech from Fed Chair Jerome Powell.
The ECB is expected to keep European interest rates on hold at 0% on Thursday and the Swiss National Bank will likely keep Swiss rates at negative 0.75% when they too give their decision. All eyes will be on the UK though, especially in the evening as the results of the election become clear.
Friday may see some follow up activity in London trading as traders position themselves after the UK elections. In the afternoon US retail sales are released and they are expected to rise to 0.4% for the month of November. Currencies to watch out for this week are GBPUSD and sterling crosses.
Good luck and good trading! Ben Robson
Ben Robson is the CEO of Spectrex Commodities and author of Currency Kings- How Billionaire Traders Made Their Fortune Trading Forex And How You Can Too.
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