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Eurozone
Strong growth in business activity in the euro zone confirms the correctness of the policy chosen by the ECB. According to IHS Markit, composite PMI in November was 57.5 points, which significantly exceeded forecasts, with the index at a high of 6.5 years, which makes it possible to expect GDP growth in the 4th quarter which is above forecasts.
At the same time, activity in the manufacturing sector was 60 points, a record reading for more than 18 years. Given this, it can be said that the production sector of the euro zone feels more than confident and much better than in the pre-crisis period.
The euro reacted to the output growth data, and this is not surprising, since it puts the ECB in a difficult situation, because to explain the need to roll back the asset repurchase program is increasingly difficult, and the growth of rates is restrained only by weak inflation. The last meeting of the ECB for the year on December 14 may bring a surprise, and bulls on the euro, no doubt, will try to take advantage of the prevailing market conditions.
On Friday, the indices of business activity in Germany from IFO will be published, and taking into account that the Markit indices noticeably exceeded forecasts, it will not come as a surprise and IFO's release is better than expected. Euro will end the week on a positive note, the probability of consolidating above 1.1880 has increased significantly and the current corrective growth can develop up to 1.20.
United Kingdom
The pound finally got a chance to stop the unnecessary strengthening, caused not so much by positive expectations in the UK economy but by the temporary weakness of the dollar.
The second preliminary estimate of UK growth in the third quarter came out unchanged, as the economy grew at an annual rate of 1.5%, but the dynamics of business investment is alarming. Despite the fact that the total amount of investments increased to 82.375 billion pounds, the growth in the third quarter was only 0.2%, and this is the worst result for 7 months.
The slowing of the inflow of investments is a direct consequence of the problems in the Brexit negotiation process. The EU countries, and first of all Germany, are interested in Britain paying its demarche at the highest rate, and the plans of the cabinet of Theresa May include creating more attractive conditions for capital than on the mainland. Judging by the dynamics of investment, while the preponderance of the EU, which can force Britain to improve its proposal, which the British negotiators do not want to do before the status of future trade relations will be clarified.
The effect of the rate hike by the Bank of England comes to naught, the market does not expect another increase in the foreseeable future, and therefore the probability of slowing the rise of the pound or even a downward turn looks natural.
Oil
Oil continues to hold close to two-year highs, but the risks of a deep correction is growing noticeably. Next week there will be a long-awaited meeting of OPEC +, dedicated to the extension of the agreement on limiting production. The market fears that Russia may succumb to the pressure of some of the oil companies that are dissatisfied with the restriction of production, and will insist on a softer version of the agreement, which is to extend the restrictions not by nine but by six or even three months.
In our view, such fears are unlikely to be realized, and the oil may update the highs next week.
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