US Market Open: Indices to open at new highs
Joshua Warner December 17, 2020 12:11 AM
US markets are eyeing new record highs ahead of the open, while both the euro and the pound have rallied against the dollar.
- US indices are expected to open at their highest-ever level on Wednesday.
- Attention is on the Fed announcement later as the central bank reveals its outlook for the US economy going into 2021.
- European indices were trading higher at midday as hopes of a Brexit deal were revived and following a slew of economic data out this morning.
- In forex, both the pound and the euro are rallying against the dollar and both currencies hit their highest level against the greenback since 2018.
US Federal Reserve to provide outlook for 2021
The Fed is scheduled to meet later today to release its outlook for the US economy in 2021, with markets hoping the introduction of vaccines will bolster the central bank’s view. The start of a vaccine rollout since it last met in November has changed the playing field this time around and markets are keen to see how it has impacted its view on the economy.
The bank’s bond-buying programme will be closely-watched but most of the market is expecting the bank to simply outline what would need to happen for it to change its plan, rather than introduce new economic stimulus this time around.
The fact politicians are still wrangling over a new fiscal stimulus bill puts further pressure on the Fed as it gives the bank less clarity to work with. A dovish tone is expected overall, but the question is how dovish it will ultimately be.
US moves closer to fiscal stimulus package
Still, prolonged discussions about a new fiscal stimulus package do appear to be progressing after leaders met on Tuesday to discuss their differences over how to prop up the economy and government funding during the pandemic. Both Republican and Democrat leaders have voiced their ambition to strike an agreement this week and Republican Senate leader Mitch McConnell said they were getting ‘closer and closer’.
Amazon tries to disrupt Microsoft’s $10 billion JEDI contract
Amazon has asked courts to dismiss a $10 billion contract awarded by the Pentagon to Microsoft. The lucrative JEDI cloud computing contract was awarded to Microsoft but re-evaluated earlier this year, with a review stating the firm was still the best option. However, court papers have revealed Amazon believes it should be invalidated because of ‘systematic bias, bad faith, and undue influence exerted by President Trump’.
Aphria and Tilray consider mega-merger
Two of the world’s largest marijuana producers, Aphria and Tilray, have agreed to combine forces, according to reports from Bloomberg. It is expected to be an all-stock deal with an equity value of around $3.8 billion.
European indices up as Brexit hopes rise again
The Euro STOXX Index traded at 3550.5 at midday, up 0.4% from 3537.3 at Wednesday’s close.
France’s CAC 40 was only trading marginally higher at 5568.3 from 5563.8 at the close of trade yesterday, while Germany’s DAX had surged 1.1% higher to 13569.0 from 13424.5. Germany was one of the stronger performers when it came to PMI data released earlier today, and the index is now at its highest level since late February, representing a recovery of its pandemic-induced losses this year.
Meanwhile, over the Channel, the FTSE 100 was up 0.5% at 6573.0 after closing at 6543.0 yesterday.
Brexit hopes rise once again
Markets grew optimistic that a Brexit deal could be salvaged before the end of the year after British MPs were put on standby to ensure they are ready to scrutinise any agreement that comes to fruition next week. The news has sent sterling higher.
There is not thought to have been any breakthrough on the sticking points preventing an agreement, like fisheries and the level playing field, but preparations being made on both sides suggest they believe a deal is still possible.
‘I cannot tell you whether there will be a deal or not. But I can tell you that there is a path to an agreement now. The path may be very narrow but it is there," European Commission President Ursula von der Leyen told the European Parliament on Wednesday.
European countries tighten lockdown rules
European countries have started to tighten lockdown restrictions to try and stem a surge in cases over the holiday season. Germany is reintroducing stricter rules on Wednesday, while the UK capital London has also entered tighter rules. The Netherlands has also recently introduced a new tougher lockdown period that will last five weeks, while France is replacing its lockdown with a new curfew.
Pressure is building on the European Medicines Agency to review the Pfizer-BioNTech vaccine that has already been approved in the UK, US, Canada and other countries. The decision is now expected to be made on December 21 rather than December 28 as originally planned.
Eurozone economy contracts less than expected
Flash data suggested the eurozone’s composite PMI, used as a barometer of overall health, was 49.8 in December compared to 45.3 in November. A reading above 50 implies growth while below 50 means the economy contracted. The figure was better than expected and has provided confidence that GDP figures won’t be as bad as expected in the final quarter of 2020. Notably, the PMI for the UK came in at 50.7 – in growth territory – from 49.0 in November.
UK inflation falls more than expected
UK inflation rose at annual rate of 0.3% in November, slower than the 0.7% growth reported the month before, according to the Office for National Statistics. Growth was hampered by the second lockdown introduced in November and was slower than expected by markets.
Forex: Sterling and euro climb against dollar
The pound was recording gains today on the hopes that a Brexit deal could be reached, as well as broad weakness in the dollar.
GBP/USD was at 1.35388 at midday from 1.34644 at yesterday’s close, reaching its highest level since May 2018. Sterling also gained against the euro, with EUR/GBP down 0.2% at 0.90097 from 0.90282 at the close yesterday.
Meanwhile, the euro also rallied against the greenback to hit its highest level since April 2018, with EUR/USD at 1.2200 from 1.21509 at the close on Wednesday. City Index analyst Fiona Cincotta writes this morning about EUR/USD coming into focus ahead of the Fed meeting and takes a technical look at the chart.
The most drastic movements in the currency markets in early afternoon trade, according to data from Reuters, are as follows:
Commodities: Oil and gold edge higher
Brent was trading at $50.76 at midday compared to $50.70 at the end of play yesterday, while WTI traded at $47.80 compared to $47.70.
Gold traded at $1864.8, pushing higher from $1853.5 yesterday.
Market-moving events in the economic calendar
After a busy morning of economic data, the calendar turns to the US this afternoon with PMI data out at 1445 GMT, ahead of the main event of the day that sees the US Federal Reserve release its monetary policy statement at 1930 GMT.
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