Volatility in stock markets was low yesterday. The presidential debate between Donald Trump and Joe Biden that took place in the early hours of Wednesday generated a lot of headlines, but it didn’t have a major impact on the markets.
The main news story of the day was political. US Treasury Secretary, Steven Mnuchin, said he was willing to have one more attempt at brokering a deal with the Democrats in relation to the proposed coronavirus relief package. Earlier this week, the Democrats called for a scheme that was lower than previously proposed, they put forward a package worth $2.2 trillion. The Republicans are believed to be keen on a deal worth roughly $1.5 trillion, so there is still a big gap in when both sides want. The commentary from Mr Mnuchin gave dealers hope that some sort of a compromise might be achieved. Stocks in Europe finished the day in the red as they turned lowered in the last 30 minutes of trading. US indices finished up more than 1%.
The political standoff with regards to the proposed stimulus package has been going on for approximately two months. To an extent, there isn’t a huge amount of pressure on the Trump administration to reach a deal as the unemployment rate in August fell to 8.4%. Yesterday, the US posted solid economic indicators, so that might hold back the Republicans from compromising too much.
The US ADP employment report showed that 749,000 jobs were added in September, which was a big improvement on the 428,000 jobs that were created in the previous month. The Chicago PMI reading for September was 62.4 – it’s highest in 19 months. There was a small positive revision to the US growth figures. The preliminary reading for second quarter GDP was -31.7%, and it was revised to -31.4%. It is possible that the initial jobless claims reading that is due out today and the US non-farm payrolls report that will be posted on Friday will influence the Republicans. Mr Mnuchin and Nancy Pelosi, of the Democrats, failed to reach an agreement yesterday, but talks will continue.
The Asian session is quiet as the markets in mainland China and Hong Kong are closed because of a holiday. Trading on the Japanese stock market had to be suspended due to a glitch. In Japan, the Tankan manufacturing survey for the third quarter was -27, which was an improvement on the second quarter of -34 but economists were expecting -23. The non-manufacturing update was -12, and that missed the consensus estimate of -9. The second quarter reading was -17. The sectors are clearly recovering, but not at the rate that economists had hoped. Nikkei index futures have drifted lower in the last few hours. European indices are set to rebound.
Demand in the eurozone is in low supply. The preliminary reading of French CPI was 0.0%, its lowest since 2016. On Tuesday, it was revealed that German CPI fell to -0.4%, the lowest reading in five years. The eurozone was in a relatively weak position compared with the UK and the US, when the pandemic set-in, and it now looks as if demand is falling.
The US dollar slightly rebounded yesterday. It hit a two month high last Friday, and it came under pressure from profit taking at the start of the week. Yesterday, it pulled back a small bit of the ground that it lost. In recent weeks the dollar has outperformed when risk-off sentiment was doing the rounds, and the lack of overall volatility was possibly a factor in the muted move in the greenback. yesterday.
Gold and silver took a knock, partially because of the turnaround in the dollar, but also due to profit taking – the metals pushed higher in recent sessions. The inverse relationship between the commodities and the dollar has been strong. Copper enjoyed a move higher yesterday on the back of the well-received manufacturing data from China.
Between 8.15am (UK time) and 9.30am (UK time) a number of European economies will publish their manufacturing PMI reports. Spain, Italy, France, Germany and the UK will post their numbers, and the consensus estimate is 50.5, 53.6, 50.9, 56.6 and 54.3 respectively.
The eurozone unemployment rate is tipped to increase from 7.9% to 8.1%, and the report will be posted at 10am (UK time)
The US initial jobless claims reading is expected to fall from 870,000 to 850,000. The continued claims reading – which is one week ahead behind the jobless claims report – is anticipated to be 12.22 million, and that would be a drop from the 12.58 million in the previous update. The numbers will be posted at 1.30pm (UK time).
At the same time, the core PCE reading will be announced, and economists are expecting it to increase to 1.4% from 1.3%. The expenditure and income readings are tipped to be 0.8% and -2.4% and respectively.
The US manufacturing PMI reading is anticipated to be 53.5. It will be published at 2.45pm (UK time). Shortly after, the ISM manufacturing metric will be posted, and the consensus estimate is 56.
EUR/USD – has been moving lower since early September and while it holds below the 50-day moving average at 1.1794, the bearish move should continue, and it might find support at 1.1497, the 100-day moving average. If the wider bullish trend continues, it should target 1.2000.
GBP/USD – is in a downtrend and if the negative move continues it might encounter support at 1.2480. A rebound could run into resistance at 1.3027, the 50-day moving average.
EUR/GBP – while it holds above 0.9070, the wider bullish trend should continue. A break above 0.9291, should put 0.9388 on the radar. A move below 0.9070, should bring 0.9000 into play.
USD/JPY – while it holds below the 50-day moving average at 105.78, the broader bearish move is likely to remain intact. 104.00 might act as support. A break above 105.78, could see it target 106.63, the 100-day moving average.