Markets embrace a clearer Brexit outlook
The pound looks set to extend last Friday’s gains to a second day after investors reviewed the implications of the Conservative Party’s resounding win at Thursday’s election over the weekend. One conclusion seems to be that an orderly exit from Europe may actually happen on January 31, which is probably the best future outlook we have seen in months. Indeed, PM Johnson has said he wants a parliamentary vote on Brexit before Christmas in order to get it done by the deadline.
The pound hasn’t yet reached the lofty heights of Friday’s high at 1.3516 versus the US dollar, the highest since May 2018, and is still facing some tough resistance at the 55-month moving average at 1.3416. That moving average has contained prices on a closing basis since October 2014. GBP/USD is now up 0.4% on the day at 1.3386.
GBP/USD Monthly Chart
China data tops estimates
There was a broad risk-on feeling at the start of the week in Asia as Friday’s announcement of an agreement in principle to the Phase 1 US-China trade deal was topped by some encouraging data out of China. China’s retail sales and production data for November both came in above forecast while fixed asset investment was in line with expectations. Sales grew 8.0% y/y, better than the 7.6% expected and the fastest growth rate in five months, while industrial production rose 6.2% y/y, the fastest pace since June, and well above economists’ expectations of 5.0%. Fixed asset investment rose 5.2% y/y year-to-date for a second consecutive month.
US indices have advanced between 0.05% and 0.33%, with the US30 index the under-performer while European futures are suggesting a higher open for European and UK bourses.
On the currency front, in usual fashion, the Japanese yen was weaker on the day, wiuth USD/JPY up 0.03% at 109.38 amid a better risk appetite, but the Australian dollar gave back early gains and is now 0.04% lower at 0.6871.
AUD/USD tested the 200-day moving average at 0.6911 on Friday but failed to close above it. That moving average in now at 0.6910 and has capped prices on a closing basis since March 2018.
AUD/USD Daily Chart
Flash PMIs dominate
Today is the day for the Markit flash PMI numbers for December from around the globe. Analysts are anticipating improvements for Germany, Euro-zone and the UK, with gains to 44.5, 47.1 and 49.4 respectively, with a slight deterioration to 52.4 seen for the US. The German PMI has been below the 50 contraction/expansion threshold for all of this year while the UK one has struggled since June.
The full MarketPulse data calendar can be viewed at https://www.marketpulse.com/economic-events/ 
Gold remains stuck below the 100-day moving average, which is at 1,490.20 today, since November 7, despite posting the biggest weekly gain since September last week.
Crude oil prices were given an initial boost with the announcement of the Phase 1 deal, with West Texas Intermediate advancing above $60 per barrel to levels not seen since September 17. The push through $60 proved fleeting with the 78.6% Fibonacci retracement level of the drop from September 16 to October 3 at $60.744. WTI is now at $59.902.
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