Positive surprises

It is hard to resist an impression that those final weeks of the year bring about a wrangling between bears seeing problems in Europe and bulls focusing on improving (somewhat surprisingly) macroeconomic environment. However, while problems in Europe are fairly well known and thus discounted, changes in the macroeconomic picture come as a positive surprise. And thus the chances for a bullish end of the year that we indicated already last week and that started to materialize yesterday.

The data provided a great support. The German Ifo index rose for the second straight month, this time to 107,2 pts, denying expectations for a decline to 106,1 pts. While this advance is a minor one it is still a great news as it comes in the place which was thought to dive into a recession. Moreover, this improvement also confirms positive signals from the flash PMIs.

In the US the combined number of housing starts (685k) and building permits (681k) was the highest since October’08 even though this time (unlike in the spring of last year) the number is not fueled by tax relieves. The picture of the residential market in the US is somewhat unclear – we see a (more less) steady improvement in housing starts but also a flat new home sales, still hovering around multi-decade lows. Perhaps US developers anticipate this demand to pick up next year.

Both EURUSD and equity markets reacted positively to the data. The EURUSD has reached a resistance at 1,3144 but a further advance to at least 1,33 is definitely possible. The S&P500 futures, currently at 1241 pts., face no major hurdle until they reach 1288 pts.

Commodities gain

An improvement in the sentiment was reflected in higher commodity prices as well. Oil gained as many as 5 USD per barrel to move above 107 USD (Brent). While it doesn’t change the mid-term outlook for the market (the price of oil remains in a downward sloping consolidation), it is hardly a good news for equities as costly oil will be a drag on economic growth next year.

Weaker dollar pushed gold prices up as well. One needs to notice that the long-term trend line has been defended one again and despite a long-term prospects for this metal (which in our judgment are far from rosy), the short-term outlook is positive.

Przemysław Kwiecień PhD, Chief Economist

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