European markets on a firmer footing on Friday – FTSE 100 made a bold move at the open to recapture the week’s intraday high at 7,093 struck on Monday before pulling back, still trades up roughly half of one percent in early trade. This comes after a lacklustre session on Wall Street – Nasdaq up a touch, S&P 500 down a touch after the textbook bounce off the 50-day SMA on Thursday. Cyclicals were higher along with real estate, while basic materials and energy declined as oil pulled back from its highs and precious and some other metals took a hit. Stock markets on either side of the pond now just in the green for the week, Nasdaq just a tad lagging at the moment. Better session for the Hang Seng but still down 5% for the week.

Airlines and associated travel stocks are among the top performers this morning on hopes for the relaxation of international travel rules. Ministers are looking to scrap the need for the double-jabbed returning to the UK to take PCR tests, whilst the traffic light system would be scrapped. This would remove a huge blockage for the industry, though what hoops you need to go through once you get to your destination is another matter… ‘your papers please’…’I just wanted a sandwich!’. Anyway, shares in the likes of TUI and IAG rose around 4%. SSP – which does the sandwiches – up 3%. WH Smith +2%.  Informa – which does conferences – also benefitted as it ought to make business travel less of a headache for those HR teams. Not all travel shares were up – EasyJet fell another 1%. HSBC rallied on two upgrades. IHG also got a boost as Berenberg upgraded to buy. Wickes rose 5% after Deutsche Bank raised the stock to buy. 

UK retail sales missed expectations in August, but people are spending more on doing things than they are stuff. We had 18 months locked up to order patio sets and games consoles. Now is the time to get out and go the pubs, restaurants or whatever it is you like to do. 

After bemoaning the lack of FX volatility earlier this week, yesterday saw it reappear. The main story was a stronger dollar, which rose to its highest in three weeks after some surprisingly good US data. US retail sales rose +0.7% vs –0.8% decline expected, which signalled resilience among consumers as delta fears start to ebb and perhaps indicates spending will start to improve as US households unwind savings again after a period of caution. JPMorgan’s latest spending data report showed consumer spending well above July/August levels. More good news for the US economy emerged as the Philly Fed manufacturing index jumped as price pressures eased. 

And now an FT report claiming the European Central Bank is far closer to raising rates than official communiques indicate has the market guessing. The report cites an internal memo saying the ECB is on track to hike rates in about two years’ time, a year earlier than forecast. EURUSD has caught some bid after hitting its weakest since late August but this could just as well be about a paring of dollar gains after an outsize move yesterday. I would not be surprised if the ECB were to keep schtum over a possible earlier rate hike, as it won’t want the euro to rally, however such a hawkishness would go against everything we have come to learn about the ECB over the last decade. It maybe reflects internal concerns that inflation will be stickier than central banks admit right now and that they will be forced into adopting a less accommodative stance presently. On that note, markets are keen to see what the Bank of England does next week to get a grip on inflation.

EURUSD: potential inverted head and shoulders but near-term momentum with bears – note bearish MACD crossover. Current price action is tracking a well-worn channel. If a test of 1.6660 fails then we look to recover 1.19. If this gets taken out first and confirmed, looking for 1.22.

Gold was hammered yesterday as the dollar rose and Treasury yields spiked on the better US data. Whilst neither of the data sets should materially alter the Fed’s decision next week, they do nudge things in favour of the USD and spikier yields. The MACD indicator again provided us with a good signal last week for a short. Could be a shakeout of the weaker hands before resumption of attack on $1,830.