Bulls versus bears, the battle continues

Economics

This week in the US we expect the Fed to increase interest rates by 25 basis points to 2.25% at its meeting on Tuesday.

Industrial production growth is likely to have slowed in November in line with recent business surveys. We expect Eurozone inflation to slow in November line with the initial Eurostat flash. The German Ifo business confidence should have moved sideways.

In Japan we expect the Q4 Tankan business survey to fall back in line with weaker industrial production, manufacturing PMI's and small business confidence.

Foreign exchange

Euro/dollar: Last week defined restistance around 1.3450 indeed put prices under pressure. We expect further downward pressure for a test of 1.3160 and 1.3050 respectively.

Dollar/yen: The calculated objective at 105.30 has been reached. Further momentum can push prices towards 105.70 and 106.95.

Fixed Income

The U.S. yield curve hardly moved over the week while in Europe long-term bond yields fell slightly. Bond markets in the U.S. were again nervous regarding a possible weakening appetite for U.S. bonds by foreign central banks.

This week in the U.S. we expect the Fed to increase interest rates by 25 basis points to 2.25% at its meeting on Tuesday. We expect U.S. yields to rise modestly over week while in Europe yields are expected to move sideways.

Equities

The battle between the bears, supported by mixed economic data, and the bulls, driven by the end-of-year sentiment, still goes on.

After starting off the week slightly negative, markets reversed on Thursday despite the rather disappointing jobless claims figure in the U.S. and a bounce in oil prices. Visibility on the direction of the markets for the months to come remains low as fundamentals contradict the positive technical picture.

We remain negative about cyclical sectors like materials and industrials, but we still favour telecom, both in the US and Europe, as well as European financials and US health care.