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Sentiment dips post Trump-Biden debate, UK GDP in focus

CMC Markets

Stock markets in Europe and the US posted relatively small losses yesterday. 

Eurozone indices posted very impressive gains on Monday, as the DAX 30 and the FTSE 100 rallied 3% and 1.4% respectively, while yesterday the markets dropped by 0.35% and 0.51% respectively. The pandemic claimed the lives of over 1 million people and that weighed on sentiment, but the falls suffered by stocks were not that big. It was a similar situation in the US whereby modest losses were posted.

The toing and froing between Democrats and Republicans continued. Nancy Pelosi, the House Speaker spoke with Steven Mnuchin, the Treasury Secretary, not much was mentioned about the chat, but the Democrats rowed back of some of their demands with respect to the coronavirus stimulus package – they lowered their request to a $2.2 trillion package. It is understood the Republicans are keen for a scheme of $1.3 trillion so a large gulf still exists, but the fact that Pelosi and Mnuchin are due to speak again today points to some progress.

Overnight, China posted the Caixin survey of manufacturing for September. The reading was 53 while the consensus estimate was for it to remain at 53.1. The official manufacturing PMI report for September was 51.5, which was a slight improvement on August’s 51, and keep in mind the forecast was 51.2.

Equity markets in Asia are largely positive in the wake of the manufacturing data from China, but the US index futures have drifted lower in the last few hours on the back of the first US Presidential debate. The event was described by some as ‘chaotic’ as both candidates were regularly interrupting each other. Mr Biden attacked the US leader on his handling of the pandemic, while Mr Trump questioned the Democratic candidates’ ability to have done a better job in the circumstances. The Donald did not confirm that he will leave the White House peacefully should he lose the election as he seems to be suspicious of postal voting. European indices are called lower.      

There was some positive economic data from the US yesterday. The Case Schiller house price index reading showed an increase of 0.6%, on a monthly basis, in July. That easily topped the 0.2% forecast. The June reading was revised from 0.2% to 0.3%. It would seem the US housing market, like the UK, is enjoying a positive run, possibly due to pent up demand. The conference board consumer confidence reading was 101.9, and that smashed the consensus estimate of 89.5. It was a big rise on the 86.3 reading registered in August. The conference board consumer confidence reading hit its highest level since the pandemic set-in, which is encouraging but traders will want to see that retail sales are picking up too.

Germany’s preliminary CPI reading for September was -0.4%, the lowest since 2015. The update was a sharp fall from the -0.1% registered in August. It is fair to say that commodity prices, such as oil, have declined recently, but the reading mostly likely is also because of a fall in underlying demand. Last week, the flash services PMI report showed that the sector experienced negative growth, so that would marry up with the weak inflation reading.

Andrew Bailey, the Bank of England boss, said the evidence with regards to negative interest rates is mixed, which seems like he is giving himself the option to go down that avenue at some stage. The British banking system is under strain because of squeezed lending margins, and the of risk bad debts rising because of the pandemic. Should the rates turn negative, that’s likely to inflict further pain the strained sector.

The US dollar had a big sell-off yesterday. The currency hit a two month high on Friday and it has been hit by profit taking since. The negative move in the greenback lifted gold and silver. The metals dropped to two month lows last week and more recently we have seen a recovery.

Oil took a knock yesterday because of the health concerns.  

The final reading of UK GDP for the second quarter will be posted at 7am (UK time). On a quarterly basis, the reading is tipped to be -20.4%, unchanged from the preliminary reading. Keep in mind the first quarter update was -2.2%. Also at 7am (UK time), German retail sales will be announced and it is expected to rebound to 0.5% from the -0.9% posted in July.

French CPI is expected to be 0.3% in September and that would be an increase from 0.2% in August. The report will be revealed at 7.45am (UK time).

Germany’s unemployment rate is anticipated to hold steady at 6.4%.

The US ADP employment report for September will be posted at 1.15pm (UK time). Economists are expecting 650,000, which would be a big jump from the 428,000 jobs added in the prior reading. Shortly afterwards, the final reading of the US second quarter GDP will be announced, and it is expected to be -31.7%. In the first quarter the economy contracted by 5%.

The energy information administration report is tipped to show that US oil inventories increased by 1.5 million barrels, and that gasoline stockpiles dropped by 1.5 million barrels.  The news will be revealed at 3.30pm (UK time).   

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 1.3024, 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 105.81, the broader bearish move is likely to remain intact. 104.00 might act as support. A break above 105.81, could see it target 106.65, the 100-day moving average.  


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