Having come off a week of a central bank double bubble, where the ECB signalled it could ease policy further in a few weeks’ time and the Chinese central bank actually did for the fifth time this year, we’ve seen a little bit of a pause as investors get set for another big week of economic data and central bank announcements, with the US Federal Reserve and the Bank of Japan set to make important policy decisions later this week. Earnings announcements still continue to underwhelm on the revenue side with clear evidence that the strong US dollar, as well as the global slowdown is starting to hit company revenues. While we’ve seen a decent rebound off the lows a month ago, with the DAX up over 13% and the S&P500 up over 8% the next question being posed is what the catalyst will be for stocks to push back towards the highs seen earlier this year. On the European side of things the current rebound still remains below the long term 200 day M/A with both the DAX and FTSE100 trading well below these key levels, however in the US the price action in the S&P500 and Dow Jones have managed to gain a foothold above it in what could be a precursor to further gains. On the data front after yesterday’s disappointing new home sales and Dallas Fed manufacturing data we have the latest September Durable Goods report, October consumer confidence and the latest Richmond Fed manufacturing data The US consumer has been one of the major imponderables this year despite the sharp drop in energy prices we’ve seen scant evidence that spending patterns have improved to the extent to signal confidence in the US economic recovery. While consumer confidence has remained fairly upbeat, when it comes to opening their wallets the US consumer has shown a significant reluctance to do so given how lacklustre retail sales and core durable goods data has been this year. In this context today’s September durable goods numbers are likely to give an indication as to whether this caution is showing any signs of improving, given that year to date we’ve seen a 1.1% decline in this type of spending. Expectations are for no change, an improvement on a 0.2% decline in August. Consumer confidence is expected to stay at 103.00, unchanged from September while the chill in the Richmond Fed manufacturing index is set to remain in contraction at -3, from -5. With the Federal Reserve set to start its two day deliberations today it remains highly unlikely that we’ll see any change to policy this month, or even this year, particularly given that we’re likely to see further policy easing from the Chinese authorities, and potentially the European Central Bank in the coming weeks. Against this back drop we get the first reading of UK Q3 GDP this morning which is expected to come in slightly lower from the 0.7% seen in Q2, with expectations of 0.6% being mooted. Given that these numbers won’t include the big jump in September retail sales seen last week, which accounts for most of the gain seen in Q3, this does seem rather optimistic, given the problems that we’ve also seen in the manufacturing sector during Q3.. EURUSD – last week’s sharp move lower has seen the euro break below both its 50 and 100 day MA but it has thus far been unable to push below trend line support at 1.0970 from the lows this year at 1.0460. Until it does so we remain vulnerable to a short squeeze back towards 1.1170. The major support remains at 1.0820 the May and July lows. GBPUSD – having failed above 1.5500 last week the pound has drifted back but appears to be caught in a sideways consolidation for now. It does appear to be finding some support near the 1.5300 area, trend line support from the September lows. We do remain at risk of a slide back towards 1.5200 trend line support from the 1.4565 lows. Resistance sits at 1.5420 and 1.5510. EURGBP – having slid below the September lows last week the rebound off 0.7170 currently looks a little weak, and needs to get back above the 200 day MA at 0.7250 to suggest a strong rebound. USDJPY – having broken above 121.00 we now appear to be struggling to move beyond the 121.80 area and September highs, which suggests we remain range bound. Above 122.00 could suggest a return to the 124.00 area. We have support at the 120.30 area. CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
UK Q3 GDP up next as stocks pause for breath
05:40, 27 October 2015 · By Michael Hewson