Key Talking Points:
- Brexit talks continue to take center stage as Boris Johnson is expected to meet Ursula Von Der Leyen in Brussels tonight
- Equities continue to borrow future returns
- IBEX 35 loses bullish momentum
BREXIT CRUNCH TALKS TO TAKE PLACE IN BRUSSELS
The FTSE 100 is moving higher this morning as Boris Johnson is set to meet with Ursula Von Der Leyen this evening for crunch talks in a last attempt to get a post-Brexit deal before the December 31st deadline. The London benchmark for equities has been relatively stable throughout the past two days despite the British Pound suffering heightened volatility as news headlines were flying around. Stocks of major exporters have an inverse relationship with domestic currency, therefore a weaker pound is somewhat supportive for the FTSE 100.
The development of EU-UK trade talks will be the main driver of the FTSE 100 going forward, as many of its constituents do a lot of business in Europe. The London index was outperforming other major European indices yesterday as coronavirus vaccinating got underway in the UK, making it the first western country to start administering the Pfizer/BioNTech vaccine.
Going forward, unless Brexit talks collapse, the path of least resistance is higher, although bullish momentum seems to be stalling and consolidation could be underway. The 81.8% Fibonacci at 6,490 continues to be a strong support area, although we cannot discard the possibility of further setbacks towards the 6,255 mark if we see an increase in bearish pressure. On the upside, the 76.4% Fibonacci level at 6,895 is likely to offer strong resistance.
FTSE 100 Daily Chart
Other major European indices are also in the green today as positive momentum is creeping back into equity markets after we saw US equities hit new all-time highs yesterday. We had begun to see consolidation taking place at the end of November after an impressive rebound on vaccine news, but stocks seem to be borrowing future returns, which means we should have moderate expectations for the next few years, once we see a normalization of inflation and reduction of the money supply.
IBEX 35 STRUGGLES TO BREAK CONSOLIDATION
The Spanish stock index has successfully cleared the 8,000 mark which has been such a strong resistance throughout the summer highs, but it seems to be flatlining as it heads towards the next key resistance area at the 61.8% Fibonacci at 8,450. In fact, the IBEX 35 has had its worst run since the end of October as it saw two consecutive days of losses at the beginning of this week, which seems to have been enough to spark some buying to start the day.
The upcoming ECB meeting is an important factor to take into account going forward, given that tomorrow will be the expected deadline to announce further monetary stimulus for the group. The hope for further stimulus from the Central Bank has kept Spanish bond yields depressed, whilst risk-premium remains unchanged around the 65-mark.
IBEX 35 Daily chart
Hard-hit stocks from the pandemic continue to be the drivers in the IBEX 35, with airlines, hotels, and banks leading the gains. Looking at the daily chart, we may expect to see further consolidation as we near the end of the year, but further upside is likely as we expect to see economic normalization with the vaccine rollout.
In the short-term, a daily close below the 8,200 line could see sellers regain control and push the price back towards the 8,000 mark, where I expect increased buying pressure to be supportive. On the flip side, a close above 8,340 will be needed to continue its bullish trend towards the 8,450 mark.
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--- Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin
