Trading focus likely to be on US this week

by David Jones, a Chief Market Strategist at Capital.com

As the trading week gets underway, focus for much of it will be on the USA. This Thursday we here from the US central bank, the Federal Reserve. No changes to interest rates are expected this month – but last Friday’s strong employment numbers (250,000 jobs added in October, versus the 200,000 the market was expecting) have raised expectations of another move higher in the US base rate in December. And of course this Tuesday American voters go to the polls for the US mid-term elections. It is tempting to say that no surprises are expected here – but given the actions of voters over the last couple of years versus what the opinion polls were expecting, there is always the potential for some adverse market reaction. The past week has seen global stock markets regain some of the losses made during October – although Friday saw a weaker performance after those strong job numbers. Nevertheless investors do seem a little more confident going into this week so further recovery for shares seems likely.

Once again the weekend press in the UK had rumour and speculation about just how far along the Brexit negotiations were. The pound had a better week on speculation that a deal for the financial services industry post-Brexit was pretty close to being done. It has started this week strong again with GBPUSD trading above the 1.3000 level – although it remains a market more driven by political developments rather than the financial health or otherwise of UK plc.

This week sees the start of US sanctions against Iran. Despite the potential threat to oil supplies, crude oil has been in decline for the past month with US crude sliding from near $77 to as low as $63 last week. This is a six month low for the oil price and so far at least the threat of those sanctions does not appear to be changing the negative sentiment. At $63 a barrel oil is still 50% more expensive than it was in June 2017 so perhaps there is a feeling amongst investors that the price had got somewhat ahead of itself this year regardless of US action against Iran.