23.11.12 Friday Morning

Following a week of heavy selling-off, European equities have regained most of the large chunk of the losses incurred and this positive sentiment has remained strong for the week. Of course, the fiscal cliff issue is still looming large over all markets, however, with signs showing that an agreement can be made between U.S. politicians there is hope that this can be solved smoothly and swiftly.

A stark reminder of the economic woes faced by the world’s leading nations came in the form of a Moody’s downgrade to the French sovereign rating by one notch on Monday.

While the move by Moody’s didn't necessarily come as a surprise, considering that not only has the European financial crisis still not been fully contained and French growth and finances have been weakening over the last few quarters, it certainly sent an important reminder that not only Greece and Spain are struggling with high debt levels and excessive budget deficits but also that France has a lot of work left to do to balance its books.

The issues concerning Greece were hoped to be solved on Wednesday at the EU finance minister meeting but the conference was re-arranged to next Monday.

The meeting could have removed a major piece of uncertainty that has been plaguing stock markets for weeks. The damage for the stock market so far is fairly limited as many are convinced that, similar to the past, when it really counts politicians will get their act together and agree to a compromise.

China’s closely-watched HSBC manufacturing index managed to move above the 50 mark for the first time in over a year indicating once more that the Chinese economy has seen the worst and is in the process of accelerating.

Some relief has been provided with the news that Israel and Hamas have agreed to a temporary ceasefire, especially after Wednesday’s bomb attack on an Israeli bus increased the likelihood that the conflict might be able to spiral out of complete control.

For now however, oil prices have moderated from recent highs. The Israeli Shekel reached its highest level in almost a month.

Thanksgiving was of course this Thursday which saw the closure of all U.S. markets and with that the regular dearth of volumes which will continue into tonight’s trading. U.S. markets opened at the same time as normal today but early closes have been set at around 18:00.

Overall while trading volume is expected to remain well below average today due to the shortened trading day in the US, it wouldn't be too surprising if at some stage moderate profit taking will take place ahead of Monday’s all important EU Finance Minister meeting in Brussels as doubts might be creeping in if a deal will indeed be reached.

This week’s failure by EU politicians to strike a deal regarding Greece didn’t have much of a negative impact on financial markets at all, mainly because of prevailing optimism that a deal wasn’t dead but instead only delayed by a few days. However for Monday’s meeting investors and traders alike do expect that some sort of a deal will be finalised and any failure to do so might be less well received this time around.

Next week’s notable economic data includes Monday’s Eurogroup Meeting, followed by a Revised GDP report on Tuesday for Britain. 

Tuesday will also see the release of CB Consumer Confidence results In the States. On Thursday, Mervyn King will speak and an Italian 10-y bond auction will take place.