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Equity optimism still circulating, BoE in focus

It was an exciting day in the US yesterday on the back of the closely watched Presidential election, and even though there were some large shifts in sentiment, stocks racked up strong gains.

Going into the election, the view was that a decisive victory for either President Trump or Joe Biden would be much preferred to an uncertain outcome – but that is exactly the situation we are now in. Mr Biden is fractionally ahead but several states have yet to declare their results. Some outcomes should be known in the next day or two, but Pennsylvania’s result might not be known until next week.

Yesterday morning, The Donald upset market sentiment by announcing that he would look to contest results, and that is what we are seeing with respect to Wisconsin – the US leader is demanding a recount. The argument has been made previously that postal voting could bring about voting fraud, but it is clear that Mr Trump will probably dispute votes that don’t go his way, so this entire process could be dragged out for weeks or perhaps months.

Sticking with the theme of US politics, it looks like the Democrats will remain control of the House of Representatives, while it looks likely that The Republicans will hold onto their Senate majority. Should Mr Biden take the top job in the end, he will find it tough to press ahead with his election manifesto. In turn, that it is unlikely that he will be able to push through a massive coronavirus stimulus scheme. On the other side of the coin, he will probably be unable to clamp down on the power of big tech companies or lift corporate taxes. There was a feeling that things won’t change a whole lot, and in a way that helped sentiment. The S&P 500 and the NASDAQ 100 rallied 2.2% and 4.4% respectively.

The bullish moves in the US prompted a rally in Australia and the Far East, and European equity benchmarks are being called higher too.    

WTI and Brent crude oil rallied yesterday as the mood in the energy market was helped by the bullish run in stocks. The EIA report showed that US oil stockpiles tumbled by almost 8 million barrels, and that was a big difference from the 890,000 increase in that traders were expecting. There might have been disruption to the US oil market on account of the recent adverse weather in the Gulf of Mexico, but at the same time, it might be down to a high demand level.             

The Bank of England (BoE) will announce its latest interest rate decision at 7am (UK time). The base rate is tipped to hold steady at 0.1%, while the asset purchase programme is anticipated to jump to £845 billion from £745 billion. In recent months, there has been some talk from the BoE that negative interest rates might be introduced, so traders will be listening out for any commentary about that possible change in policy. If the central bank is going down the route of ramping up its bond buying scheme that might be a substitute from cutting interest rates, so rates might remain in positive territory for a while.

The UK economy is still facing major challenges in the form of Covid-19 – England’s one month lockdown came into effect today, and uncertainty persists with respect to the UK’s future relationship with the EU, so the BoE might want to hold back on a very aggressive loosening of monetary policy. Yesterday, it was reported that the EU’s Michel Barnier reported back to Brussels with a ’very downbeat’ briefing. It is understood that Rishi Sunak, the Chancellor of the Exchequer, will be making a statement today and there is talk he will reveal a further extension to the furlough scheme.   

At 7am (UK time) German industrial orders will be posted and economists are expecting 1.5%, which would be a drop from the 4.5% registered in August.

Eurozone retail sales for September was anticipated to be -1.1%, down from the 4.4% posted in August. The announcement will be revealed at 10am (UK time).

The initial jobless claims reading is tipped to be 732,000 and that would be an improvement from the 751,000 registered in the previous week. The continuing claims report is anticipated to drop from 7.75 million to 7.2 million. The readings will be published at 1.30pm (UK time). Keep in mind that yesterday’s ADP employment report showed that 365,000 jobs were added last month, and that greatly undershot the 650,000 consensus estimate. It was also a large fall from the 753,000 jobs added in September – this could be a sign the US recovering is tapering off.

The Federal Reserve will reveal will announce the interest rate decision at 7pm (UK time). Rates are tipped to hold steady at the range of 0.0-0.25%. In light of the huge rebound in GDP in the third quarter, not to mention the uncertainty of the US Presidential election, the central bank are unlikely to alter their policy. 

EUR/USD – while it holds above 1.1612, it could push higher and 1.1880 might act as resistance. A break through 1.1612 might pave the way for 1.1400 to be tested.    

GBP/USD – Tuesday’s candle was very bullish and while it holds above the 100-day moving average at 1.2887, the uptrend should continue. 1.3269 might act as resistance, and a move beyond that mark, could put 1.3515 on the radar. A move through 1.2800, could see it target 1.2675.      

EUR/GBP – yesterday’s candle might be a bullish engulfing and a break above 0.9100, could put 0.9157 on the radar. Should we see a break lower, a move through the 0.9000 mark, might see it retest the 0.8864 area.

USD/JPY – last Thursday’s candle has the potential to be a bullish reversal and if it pushes higher it might run into resistance at the 50-day moving average - 105.39 and a move above that, could see it target 107.00. A break below 104.00 could see it target 101.90.                        

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