Originally published by Rivkin Securities
US equity markets moved to new all-time highs once again on Friday, boosted by the famous black Friday sales. Data collected by Adobe Digital suggested that sales on Friday were US$3.34 billion up 21.6% year-on-year however the figure jumps to around US$5 billion when we include the online Thanksgiving sales. Mobile phones accounted for around US$1.2 billion in sales, up 33% from a year earlier and this was reflected by the telecommunications & consumer non-cyclical sectors gaining +1.07% & +0.77% on Friday.
The S&P 500 finished +0.39% higher at 2,213.35, the Dow Jones Industrial Average up +0.36% at 19,152.14, The Russell 2000 up +0.38% at 1,347.20 and the Nasdaq Composite up +0.39% at 10,878.09. The U.S. dollar index paused briefly to finished -0.20% weaker, two-year US treasuries were unchanged at +1.135% while the ten-year yields gained +1.5 basis points to +2.370%.
The move to new all-time highs shown on the first chart below is very encouraging from a longer-term perspective as this often draws more funds into equities. In the near-term though technical indicators suggest the price is heavily overbought and therefore awaiting a pullback should provide good buying opportunities.
Preliminary wholesale inventories data (MoM Oct) showed an unexpected decrease of -0.4% against estimates of a +0.2% gain. Declines are an indication of stronger consumer spending with retailers buying more goods which then have to be replaced suggesting more production. A flash reading of Services PMI painted a positive picture for the first data captured following the presidential election. A composite reading of services & manufacturing was 54.9 was unchanged from October at an eleven month high. The report signals that both the US economy and jobs should growth at a solid pace in the fourth quarter of around +2.5% annualised and 135,000 non-farm payrolls in November.
In Europe the focus was on UK preliminary GDP which was unrevised from prior reading. The reading for the third quarter was +0.5% and year-on-year +2.3% as previously estimated. The data which covers the first full period following the EU referendum continues to suggest growth remains unaffected, although growth is forecast to slow next year. The pound gained +0.21% against the dollar while bond yields declined with the two-year yield down -1.3 basis points to +0.123% and the ten-year yield down -1.7 basis points to +1.420%. Both the FTSE100 & 250 were modestly higher, up +0.17% & +0.07% respectively.
In mainland Europe the spread between the benchmark German 2 year-bonds and Italian counterparts continues to widen ahead of the Italian referendum on the 4th of December. The spread widened to 1.016% on Friday up from the 0.605% on October 3rd. German two-year yields pushed to a new record low down -1.7 basis points to -0.750% as investors move into safe-haven assets.
Polls and analysis suggest that the No vote is the more likely outcome which could see Prime Minister Matteo Renzi resign as he have previously committed to do. This would be latest victory for the anti-establishment theme we have witnessed throughout 2016 however it would not likely result in the immediate replacement by an anti-establishment leader. The Italian president would then place an interim Prime Minister in charge and ultimately early elections would be called before the required date of the 23rd of May 2018. The concern is that this could lead to the anti-establishment Five Star Movement rising to power, although Italian has previous seen a coalition between left and right wing parties that could prevent this.
The Euro bounced +0.45% against the dollar having been extremely oversold from a technical perspective shown on the second chart below. At this stage any bounces in the currency are expected to be short-lived given the weight on sentiment in the coming months with key elections held throughout Europe in the next year as well as expectations of extending the ECB’s stimulus program. Equity markets were modestly positive on Friday, led by gains in the Euro Stoxx 600 & DAX up +0.18% & +0.09%.
The oil market continues to be dominated by headlines ahead of the November 30th OPEC meeting where production cuts are supposed to be formalised. The headline over the weekend was that Saudi Arabia would not attend pre-meeting talks on Monday with non-OPEC producers to discuss cuts stating it wants consensus among OPEC members first. Both Crude Oil & Brent crude fell -3.96% & -3.59% respectively.
Locally the S&P/ASX 200 was +22.71 points (+0.41%) higher on Friday at 5,507.79. While ASX SPI200 futures finished unchanged in trading on Friday at 5,514 I suspect the positive lead from new all-time highs in the U.S. should give our market a boost this morning.