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Gaza incursions set to keep markets cautious

European equity markets continued their slide last week, finishing lower for the 6th week in a row, with most of the negativity coming from disappointment over earnings as well as guidance downgrades, as we head into the final quarter of this year.

US markets also struggled finishing lower for the second week in a row, as well as closing at their lowest levels since May in a sign that the resilience shown in the first half of the year is now starting to unravel.

We also saw a late surge in oil and gold prices on Friday after it was reported that the Israeli ground invasion of Gaza had begun pushing the yellow metal back above $2,000 an ounce for the first time since May.

Crude oil prices also shot higher again with Brent crude rising back above $90 a barrel, although it still finished the week lower.

With weekend events starting to see further modest Gaza incursions the hope is that this incremental approach will ratchet up the pressure on Hamas, while not provoking another front on Israel’s northern border with Lebanon and Hezbollah.

Despite the fact the Gaza incursions occurred after European markets had closed on Friday markets in Europe look set to open slightly firmer, given the limited nature of the military action so far.

It’s easy to blame last week’s declines in equity markets on the unpredictable nature of events unfolding in the Middle East, and while that is part of it we also saw disappointment on several fronts over poor company updates, and downgrades to guidance which saw some outsized moves lower.

This trend of outsized moves for companies that don’t meet expectations on their forecasts is likely to continue this week, with more important company updates set to attract attention from the likes of HSBC today, as well as BP, Shell and Apple later this week.

All the while economic data from Europe and the UK continued to show little signs of improvement, while in the US we saw the opposite with markets looking to this week’s central bank meetings for signs that policymakers might start to shift on their higher for longer narratives that have driven yields higher in recent weeks.

Given the strength of recent US economic numbers the likelihood of the Federal Reserve undergoing a dovish shift in the short term looks unlikely, with the prospect of one more rate hike before year end still very much on the table, although we aren’t expecting them to move on rates this week.

The Bank of England, on the other hand would appear to be done on the rate hike front if market pricing is to be believed, with markets now looking to when in 2024 we might see the first rate cut.

Today’s mortgage approvals data and other consumer credit data for September are expected to show a further reluctance of UK consumers to open their wallets.

Mortgage approvals are forecast to slow to 44.5k, from 45.4k, while net consumer credit could slow to £1.4bn from £1.6bn.

In Europe, in the aftermath of the ECB’s decision to hold rates last week, inflation in Germany is expected to slow further in October to 3.3%, down sharply from 4.3% in August.

The German economy is also expected to contract by -0.2% in Q3, down from 0% in Q2, the 4th quarter in succession that it hasn’t been able to show positive growth.         

EUR/USD – found support at the 1.0520 area last week, with the next support at the recent lows at 1.0450. Resistance at the 1.0700 area and 50-day SMA. 

GBP/USD – found support at the 1.2070 area last week. Major support remains at the October lows just above 1.2030. Below 1.2000 targets the 1.1800 area. Resistance at 1.2300.

EUR/GBP – failed at the 0.8740 area again last week, with a break above 0.8750 targeting the 0.8800 area. A move below 0.8680 and the 200-day SMA targets the 0.8620 area.

USD/JPY – retreated from the 150.78 area at the end of last week, albeit making a new high for the year. Still on course for a potential move towards 152.20, while above the 148.75 area.


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