Market sentiments reversed as US equities rallied overnight with a higher intraday volatility. Most US stock indices encountered a few speed bumps before surging in the afternoon session. For instance, Facebook initially tumbled but joined the ride in the extended session after releasing a mixed third-quarter earnings report.
The bumpy rally in US stocks could reflect optimism ahead of the US Mid-term election on 6th November. The spotlight on corporate earnings report may continue as investors await Apple’s earnings report on Thursday. However, volatility may extend as investor sentiment could become increasingly sensitive to any US political headlines or discussions on the US-China trade war. The higher US 10 year bond yield above 3.10% could also act as a catalyst to a higher sensitivity in share prices.
The US dollar strengthened against most G-10 currencies overnight which is the backdrop of a better than expected Consumer Confidence Index. The Japanese Yen slid despite a better unemployment rate as investors moved away from safe haven assets. The Euro and British Pound edged lower after the EU announced a lower than expected GDP YoY, the fourth deteriorating data in 2018. The EU inflation readings together with the unemployment rate due tonight may spark a higher volatility in the regional currencies. In contrast, the Australian dollar rose ahead of the Consumer Price index due this morning. Currency markets may remain responsive to the US dollar movement and investors’ risk appetite in the short run. Specifically, analysts will be attentive to the US ADP National Employment Report due tonight to better position themselves before Non-Farm Payroll due on Friday.
Commodity markets largely slumped overnight. A stronger US dollar could bear most of the responsibilities but concerns over further elevated US-China trade war might be to blame. Gold prices dropped and key industrial metals such as copper fell sharply. Oil prices slid further on the expectation that the US Crude Oil Inventory continues to build. The action in commodity markets was contradictory to the higher optimism in US stocks. In time, the movements in risk assets could either align or would be resolved in a higher volatility.
Futures markets are pointing to a mixed start to Asia Pacific equities. The Shanghai and Hong Kong stock markets could see a bounce if the US positive sentiment spill over. Further, the China PMI due this afternoon could boost local investor buying if a higher number is shown in the subjective of a slower economy.