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Eurozone
The growth of business activity in the euro area continues to accelerate. According to IHS Markit, the composite index reached 58.1 points in December, which is higher than the November reading of 57.5 points, and is the highest since February 2011.
PMI in the service sector grew from 56.2 points up to 56.6 points, with the growth of new orders the highest for more than 10 years. The situation in the manufacturing sector is similar, with new orders reaching the highest level since April 2000, and a significant share of orders is formed under the pressure of growing domestic demand.
A record growth in business activity indicates that there is no need to wait for a decline in GDP growth in the euro area.
As for consumer activity and price level, there is also a positive trend on this aspect. While the unemployment rate remains relatively high, inflation can not begin its growth, but a number of accompanying indicators are getting better and better. The volume of retail sales in Germany in November was the highest since June 2017, significantly exceeding forecasts, producer prices are steadily growing, in November the annual growth reached 2.8%, the highest level in three years, and published on Friday preliminary data on consumer inflation in December were better than forecasts.
For investors, the economic picture for the euro area looks much more convincing than the US, and the direction of the ECB's actions is more understandable. Despite the fact that the systematic increase in the rate of the Fed leads to an increase in the yield spread in favor of US securities, the reliability of the allocation of capital in Europe looks more solid. The situation is not conducive to the beginning of the repatriation of American capital and provides support to the euro.
On January 4, the EURUSD pair formed the second high at a level slightly below 1.21 and the bulls attempted to overcome this resistance and withdraw higher. At the same time, the ECB is clearly not interested in developing the upward movement, so we should comments to temper expectations should be anticipated, which can turn the situation in favor of the dollar.
United Kingdom
The pound continued its growth last week, coming close to the highs of the year reached in September 2017, but the bulls found no arguments for a decisive attack.
The pound's growth was supported by Markit's report on business activity in the services sector In December, PMI's growth was 54.2 points against 53.8 points a month earlier, but this was not enough for a more confident bull position. Growth in consumer lending in November was below forecasts, and the absence of significant publications in the coming week will create difficulties for the formation of a driver for the continuation of growth.
Attempt to gain a foothold above 1.36 looks more likely at the moment, but strong growth should not be expected - the trade is likely to go into the lateral range.
Oil
Despite the fact that the demonstrations in Iran are stopped by the government, oil continues to hold near the three-year highs, directly indicating that the reason for the current growth is not in Iran.
The main driver of growth is the improvement of expectations for the growth of the world economy in 2018. The demand for energy resources is stable, the market balancing will occur at levels higher than it was assumed until recently, stoking risk appetite.
China intends to launch futures trading in oil, denominated in yuan, on January 18. The start of this event is unnerving for traditional players, as it may in the long term change the mechanism of market pricing. This week, reports from China will be published on consumer inflation, trade balance and the volume of foreign direct investment, and there is reason to believe that the data will be better than expected, which as a result will lead to positive growth in the raw materials market. At the moment, the expectations of reporting from China outweigh the reports of the US Department of Energy in terms of the impact on the market. Brent was aiming at $70/bpd and the probability of reaching this level in the coming days is quite high.
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