Major European indices end the session with mixed results

UK’s FTSE and Spain’s Ibex move higher

The major European indices are ending the session today with mixed results. PMI flash estimates were stronger than expected. Yields moved higher. UK FTSE and Spain’s Ibex moved higher. Other indices are lower on the day.

  • German DAX, -1.0%
  • France’s CAC -0.7%
  • UK’s FTSE 100 +0.3%
  • Spain’s Ibex, +0.12%
  • Italy’s FTSE MIB -1.3%
Looking at the benchmark 10 year yields, yields are higher across the board but well off their high levels.
UK's FTSE and Spain's Ibex move higher_

UK oil reserve release will be a token amount. Crude now higher on the day

UK release will be a voluntary one of 1.5 million barrels

The oil reserve releases from the US, China, India, Japan and South Korea were all well-telegraphed but the surprise name on the list was the UK, which hadn’t been mentioned.
However the UK barrels are negligible. Argus reports that it will be a voluntary release from UK companies of 1.5 million barrels, citing the UK department of Business, Energy and Industrial Strategy.
Oil is now green on the day, which is going to be an embarrassment for this charade.

UK release will be a voluntary one of 1.5 million barrels

No word that OPEC+ will be changing output policy for now

Not much indication just yet that OPEC+ will respond to the anticipated SPR release by US and its allies

There was talk earlier in the day that OPEC+ may reconsider their position going into next week’s meeting but reputable oil journalist, Amena Bakr, has said that there hasn’t been any word that the bloc is planning to “change” output policy yet.


I reckon we’ll have to see how things go with the SPR release and how many countries are involved, alongside the oil market reaction, before OPEC+ plans anything surely.

Eurozone November flash services PMI 56.6 vs 53.5 expected

Latest data released by Markit – 23 November 2021

  • Prior 54.6
  • Manufacturing PMI 58.6 vs 57.3 expected
  • Prior 58.3
  • Composite PMI 55.8 vs 53.2 expected
  • Prior 54.2

The French and German readings earlier served as a prelude to the beats in the overall Eurozone report here, reaffirming a modest improvement in business activity in both the services and manufacturing sector this month.

However, as mentioned here, it belies the ongoing concerns on the outlook and that is arguably the more important detail to be wary about. Markit notes that:

“A stronger expansion of business activity in November defied economists’ expectations of a slowdown, but is unlikely to prevent the eurozone from suffering slower growth in the fourth quarter, especially as rising virus cases look set to cause renewed disruptions to the economy in December.

“The manufacturing sector remains hamstrung by supply delays, restricting production growth to one of the lowest rates seen since the first lockdowns of 2020. The service sector’s improved performance may meanwhile prove frustratingly short-lived if new virus fighting restrictions need to be imposed. The travel and recreation sector has already seen growth deteriorate sharply since the summer.

“With supply delays remaining close to record highs and energy prices spiking higher, upward pressure on prices has meanwhile intensified far above anything previously witnessed by the surveys.

“Not surprisingly, given the mix of supply delays, soaring costs and renewed COVID-19 worries, business optimism has sunk to the lowest since January, adding to near-term downside risks for the eurozone economy.”

French and German PMI readings only as good as they are on paper

The PMI beats in France and Germany today come with some caveats

While services and manufacturing output saw an improvement in November, it comes after a period of sluggishness over the past four months and there are little signs that this latest bounce is going to be a meaningful or lasting one.
For one, the boost to services activity may already be stale by the end of the month already (data collected from the PMI readings are up until 19 November) considering that virus restrictions are starting to come back into the picture.
On that front, France is perhaps less impacted than Germany, so I’d take the improvements this month with a pinch of salt until there is evidence that the virus situation in Germany isn’t going to lead to limitations on business activity in the weeks ahead.
Besides that, supply and capacity constraints are still ever persistent and ongoing across the region. That is weighing on overall business sentiment while also keeping input and output costs elevated.
Eventually, the latter will feed into higher inflation pressures and in turn perhaps weigh on client and domestic demand in general.
So, while the readings are good on paper today, that is merely what it has to offer. The details reveal that there are troubling times perhaps just around the corner for Europe.


What you need to know when trading the JPY

4 things to know

Central bank policy

The Bank of Japan has a strong bearish bias. WIth Japan struggling with deflationary pressures for years and a large QE program the outlook for the Bank of Japan remains tilted to the downside.

COT report

The fact that the BoJ is likely to remain on hold with their interest rates, while the rest of the world is expected to hike rates has recently resulted in some high levels of selling from asset managers and leveraged funds. Check out the table below:

4 things to know

US10Y correlation

With the BoJ so bearish the rate differentials between the Japanese 10y and the US 10 y are usually just seen in the ebbs and flows of the US 10 y. Remember that the BoJ has yield curve control on their bond yields. So, the key point to note is this:

A falling US10Y = a rising JPY

A rising US10Y = a falling JPY


This correlation is not always perfect as it can ebb and flow, but it is a correlation to be aware of when trading the JPY and in particular the USDJPY. Look at the USDJPY chart below and its close correlation with US10y.


Oil prices

Rising oil prices is a negative for the JPY as pricier crude take JPY out of Japan. Japan buys most of its oil from overseas and a weak Yen will make those imports more expensive. If oil starts gaining to the upside watch out as this can weaken the JPY

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