Today’s UK opening call provides an update on:
- Santa rally in full swing as we approach the end of the year;
- Another quiet week expected in the markets;
- Rise in UK house prices showing no signs of slowing;
- US session also expected to be relatively quiet..
The Santa rally appears to be in full swing in the equity markets, with indices posting impressive gains last week despite the two bank holidays in both Europe and the US.
The rally once again saw the Dow, S&P and DAX posting record highs while the FTSE continued to edge ever closer to a record high of its own. We should be a little careful though as these gains have come at a time when trading volumes have dropped significantly, owing to the festive period, which can sometimes be followed by sharp reversals as volumes pick up again.
That said, January has historically been a good month for equity markets, particularly in recent years, so this aggressive rally may just be in anticipation of this trend continuing. In fact, many believe that the Santa rally is just this, investors being proactive in anticipation of the “January effect”, as opposed to it being down to Christmas bonuses being invested into the markets, or a more positive feeling generally among investors, as others would suggest.
As for today, European indices are seen opening relatively pretty much in line with Friday’s closing levels. Trading volumes are expected to remain low for most of this week, if not all of it, with another bank holiday coming on Wednesday. Volumes on Monday and Tuesday should be particularly low, as traders extend their holiday’s from last week through to the end of the year.
Not helping these lower trading volumes is the fact that the economic calendar is looking so thin. We have a few low impact releases this morning, starting with UK Nationwide house prices for December. This is expected to show house prices up 0.7% compared with November and 7.1% compared with the same month last year. This is fairly consistent with recent data which suggests the recovery in the housing market is showing no signs of slowing.
It’s still a little early to say whether this is something we should be concerned about. Some suggest we’re simply creating another housing bubble in order to get the economy moving again and distract away from the longer term issues that still face the country. On the other hand, a short term boost in the housing market, as long as that is all it is, could be what the economy needs in order to give consumers the confidence to spend again which will hopefully lead to more hiring and investment from businesses.
Also being released this morning we have the Spanish retail sales for November and the Italian business confidence figure, which is expected to rise to 99 from 98.1 in November. After this it’s over to the US, where we’re expecting a similarly quiet session. The economic calendar here is also looking very light, with the only notable release being the November pending home sales figure, which is expected to show a monthly increase of 1%.
Ahead of the open we expect to see the FTSE down 7 points, the CAC down 2 points and the DAX flat.
About Craig Erlam
Craig Erlam is Market Analyst at Alpari UK. He joined Alpari (UK) at the beginning of 2012 after four years in the financial services industry, including working at Goldman Sachs. Craig writes market commentary that regularly appears on websites including The Financial Times, Reuters, BBC, The Telegraph and FOX Business. He also provides insight and analysis for clients which he posts daily on Twitter and the Alpari (UK) website. You can also find Craig on YouTube where he gives short market updates, including charting analysis.