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  • Weekly Focus: “Old Friend” Biden, U.S. Retail Sales, and Inflation

Weekly Focus: “Old Friend” Biden, U.S. Retail Sales, and Inflation

The first meeting between U.S. President Joe Biden and Chinese President Xi Jinping in the form of a virtual summit was mostly covered by vaguer clouds as the leader of China called Biden an “old friend” while also voicing some warnings. During the virtual summit Xi Jinping warned the United States that it is “playing with fire” concerning the independence of Taiwan. In response Biden said that Washington “strongly opposes unilateral efforts to change the status quo or undermine peace and stability across the Taiwan Strait”.

The two leaders touched on some other issues like human rights in Tibet, transparency in preventing future epidemic outbreaks, and climate change. But the three-and-a-half-hour summit brought no breakthroughs.

However, markets seem to be satisfied even with this set of discussions as the Hang Seng index rose by 1,27%. European indices are edging higher with the DAX index gaining 0.55% in the afternoon, while the FTSE 100 was up by 0.19%. U.S stock indices futures traded mostly sideways, close to the closing on Monday.

Seemingly, investors are likely to now focus more on the macroeconomic data and monetary decisions . The U.S. October retail sales are expected to rise to 1.1% against 0.7% in September. Positive expectations are well confirmed by October retails sales in China that were up to 4.9% year-on-year vs 4.4% in a previous month. Investors may consider such a rise in retail sales in the U.S. as an inflationary factor that may push the Federal Reserve (Fed) to speed up tapering of its still massive bond purchase programme of $105 billion a month in its December meeting. Given this logic we may see a decline of the S&P 500 broad market index to 4650 points on these seemingly positive figures.

The situation with global inflation perceptions could be even worse when new inflation data is released in Canada, the Eurozone and the United Kingdom. Consensus suggest inflation could accelerate in October. If this is confirmed, together with rising inflation in the United States that jumped to 6.2% in October, it may cause another wave of the decline as was seen during last week. However, this time the decline is likely to be less.

For the S&P 500 index it would be important to hold above 4650 points. If this support level is broken, we may see a decline towards the main support at 4600 points that would activate great buy opportunities with a target at new all-time highs at 4720 points. But this drop would delay the rally and may even curb it. So, it is important to monitor the levels at which the market will reach after the publication of these retail sales and inflation data. If the index manages to hold above 4650-4655 points, traders may seek buy opportunities with the target at 4720-4740 points.

The oil market has surprisingly shown downward dynamics with Brent crude benchmark prices falling to the range of $80-81 per barrel following a rebound to $83 per barrel on Tuesday. We may hardly expect any significant changes in crude prices this week.

Gold prices successfully retested the support level close to $1840 per troy ounce at the end of last week. But this retest was very rapid and could not therefore secure a further rise of gold prices towards $1920 per ounce. Prices may return to the $1840 landmark to retest it properly, and this idea is confirmed by the continuous strengthening of the Greenback.

EURUSD has failed to recover from 1.14400 on Friday and is again looking for a decline to 1.11500-1.12500. The President of the European Central Bank (ECB) Christine Lagarde on Monday blessed a further decline of the Euro by making more dovish statements regarding ECB’s approach to inflation.

On the contrary, GBPUSD is on the upside track again this week. Despite a possible surprise decline to 1.33700-1.33800 on Tuesday, these dips should be used to open buy positions with a first target at 1.34500 and second target at 1.35500. If the pair moves straight to 1.34600-1.34700 and  crosses it upward, the way towards the 1.35500 target will also  be intact.