Stock indices bounce back

David Morrison  |  November / 4. Week
Cryptos Bloodbath
 
US and European stock indices closed higher on Monday, making up for some of last week’s losses. Investors had been caught off-guard by moves over Thanksgiving week where US indices posted their biggest declines in seven years.
 
Technically there was room for a bounce and all that was needed to catalyse some short-covering was a bit of positive news which is exactly what we got.
 
Over the weekend the European Union waved through Theresa May’s Brexit proposal. Of course, the UK Prime Minister faces a much bigger hurdle when her Chequers-type plan is put before Parliament in two weeks’ time. But European stocks were also lifted by an apparent thawing in the relationship between the European Commission and the Italian government over the latter’s deficit-busting spending plans.
On Sunday Italy’s Deputy Prime Minister Matteo Salvini suggested there could be a rejigging of the draft budget. Then on Monday he told Italian media that his government could be "open" to a lower deficit spend.
 
However, the EU is still calling for the Italian government to cut their deficit target below 0.8% and that seems a long way below the target set by the coalition. A climbdown by Italy’s leaders would not go down well with voters. Support for Salvini’s Northern League party has increased every time he has stood up to the European Union. Nevertheless, the news saw Italian banking stocks and government bonds soar.
 
Cryptocurrencies continue to decline. Two weeks ago Bitcoin cracked below support at 6,000 and is now trading below 4,000. Last December it mas closing in on 20,000 which means it has lost 80% of its value in less than a year.
 
This is a big week for Fed speakers. Many investors now hope that the US central bank may indicate that it is prepared to slow down the rate of future rate hikes, blaming fresh uncertainty over the outlook for global growth. This has been reinforced by the 30%-plus decline in the oil price since early October.
 
Tuesday brings speeches from FOMC member Raphael Bostic and Federal Reserve Vice-Chairman Richard Clarida. On Wednesday the Bank of England releases its Financial Stability Report and Bank Stress Test results. We also have US Preliminary third quarter GDP, Crude Oil Inventories and a speech from Fed Chairman Jerome Powell. Thursday brings third quarter GDP updates from Germany and France and the ECB’s Financial Stability Review. From the US we have Core PCE, the Fed’s preferred inflation measure, Personal Spending, Personal Income and minutes from the last FOMC meeting earlier this month. On Friday there’s Chinese Manufacturing and Non-Manufacturing PMIs, Euro zone Flash CPI, Canadian GDP, Chicago PMI and a speech from FOMC member John Williams.
 
But the highlight of this week will be the G20 meeting in Argentina on Friday and Saturday. This has nothing to do with what will come out of the G20 meeting itself, as usually nothing does. However, this is expected to be the venue for a side meeting between Presidents Xi Jinping and Donald Trump. Again, hopes are high amongst investors that the two leaders will manage to reach a compromise over their trade differences ahead of the next scheduled escalation in tariff hikes in the New Year.
 
Have a great week!
 

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