European open – Tough week for UK and markets

Sell-Off continues on Monday

It’s shaping up to be another tough week in financial markets, with Europe soon to join Asia in the red and the US joining the club later in the day unless we see a dramatic shift in sentiment.

Friday’s jobs report did little to stop the bleeding, with jobs growth in November coming in well short of expectations and monthly wage growth also missing. This weaker assessment has softening expectations for near-term rate hikes, with even December which only a week ago looked a near certainty now dropping to around 70% and another next year being less likely than not.

CME Group FedWatch

Source – CME Group

We may have hoped that this less hawkish outlook for interest rates would support the market – with the opposite having been the catalyst for the sell-off back in October – but with the yield curve still inverted between three and five years and more people now anticipating a slowdown next year, the bullish case for stocks looks to be fading fast.

Aussie dips as China trade slows

Can May survive a failed vote on Tuesday?

It’s not just the markets that are facing a tough week, Theresa May will struggle to still have a job by Friday if she fails to get her Brexit deal through parliament on Tuesday. The PM has shown incredible staying power over the past 18 months having survived numerous hairy moments that could have toppled her but this could be a step too far unless she can convince MPs that she can deliver what they want.

GBPUSD Daily Chart

OANDA fxTrade Advanced Charting Platform

There are so many avenues that this process could go down if the vote fails on Tuesday and that uncertainty could drag on sterling which is currently clinging on for dear life around 1.27 against the dollar. I still feel that traders are reluctant to let go just yet on the stubborn belief that a positive outcome lies ahead, the only problem being that there could be some severe turbulence between now and then. If the vote fails on Tuesday, as is widely expected at this point, it could take 1.27 with it and the downside could be quite significant.

Equity markets: the bar is high for a sustained bullish pivot

Oil stable but not roaring higher after output cut agreed

OPEC and its allies managed to get a production cut over the line on Friday, promising to pump 1.2 million barrels less from January than it did in October, with OPEC shouldering 800,000 of those. The agreement is clearly a success for the group, which is desperate to remain relevant in a world that is dominated by the three largest producers, the US, Russia and Saudi Arabia. Russia’s agreement at a larger cut is the only reason this got over the line, otherwise it would have been a total failure.

With the review now set for April, just before the US waivers on Iranian oil expire, producers will be hoping they’ve done enough to stem the bleeding. We saw a nice rally in response to the news on Friday but prices still remain under pressure. A rebound back above $70 in Brent or $60 in WTI may not be on the cards just yet but the deal may have succeeded in avoiding another trip back towards $40 which producers will be relieved about.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary.

His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News.

Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.