Traders were in risk-on mode yesterday even though there wasn’t a whole lot to be bullish about. 

Equity markets in the eurozone gained major ground and Germany outperformed as it rallied by over 3%. On Friday, the DAX 30 and the CAC 40 both fell to multi-month lows, and yesterday dealers swooped in to snap up relatively cheap stocks. The FTSE 100 ended the day 1.4% higher, and that was considered an underperformance. The British index posted gains on Friday, while the continental markets finished in the red.

US stocks performed well too last night. Lately the tech-focused NASDAQ 100 has typically set the tone, but last night the Russell 2000 rallied 2.4%, while the NASDAQ 100 gained 1.9%. Perhaps traders wanted to take on more risk by buying small cap stocks. 

The bullish sentiment in equities yesterday was a little strange given that there wasn’t any particular news that triggered the buying. In fact, some of the news stories were negative. The health crisis might have not put off traders from buying into stocks, but the situation is still concerning. Relationships between China and the US government endured another setback after the Trump administration imposed tougher trade restrictions on the Chinese company SMIC – this is a continuation of the US government playing the national security card.

Trade talks between the UK and the EU will continue this week. Not long ago, Prime Minister Johnson said that if a deal was not reached by mid-October, the British side would walk away from the negotiating table, so the pressure is mounting to broker an agreement. Yesterday, there was some cautiously optimistic language from the British side. A spokesperson for the Prime Minister said that a gulf between the two sides existed, but it is still possible to reach a deal. The CMC GBP Index was one of the best performers yesterday.

It was reported that President Trump paid next to no tax in the years that preceded him winning the US presidential election. The Donald has since denied the allegations and given that he is due to debate Joe Biden of the Democrats tonight, the issue is unlikely to go away. Mr Trump has a track record of trying to divert negative attention away from himself, so it is possible that he might try and persuade his fellow Republicans to edge towards doing making a compromise with the Democrats with respect to the coronavirus relief package.

Nancy Pelosi, the House speaker called for a $2.2 trillion stimulus package. The proposed scheme is designed to help restaurants, small businesses, airline workers, and provide funding for schools. Pelosi will speak to Steven Mnuchin, the US Treasury Secretary, today. The Republicans will probably knock back the proposed scheme and claim the level of funding is too high, as they have previously expressed interest in supporting a $1.3 trillion package.

Equity markets in the Far East are broadly showing small gains, and indices in Europe are tipped to build on yesterday’s gains.    

The US dollar sold off yesterday as traders were quick to book their profits from recent gains. On Friday, the greenback hit a two month high as dealers’ sought out assets that are considered to be lower risk. Seeing as the mood yesterday was risk-on, the dollar took a knock.

Gold gained ground yesterday thanks to the slide in the US dollar. The inverse relationship between the two has been strong recently. Industrial metals also enjoyed positive runs, partially because of the dip in the dollar, but also because the latest Chinese industrial profits report showed 19% growth – its fourth consecutive monthly gain. Copper, silver, platinum and palladium all pushed higher.

Sticking with the commodity theme, oil was assisted by worries about potential disruption to supply. Violence has broken out between Armenia and Azerbaijan, and given that part of the world is important because of energy pipelines, dealers are nervous. There are also fears that oil workers in Norway could go on strike this week.          

At 9.30am (UK time), the UK will announce a number of economic indicators. The BoE consumer credit reading for August is tipped to be £1.45 billion, which would be an increase on the £1.2 billion posted in July. Mortgage lending is expected to improve to £3.65 billion from £2.7 billion, and mortgage approvals are anticipated to be 71,000, up from 66,300. Traders will be wondering if people are willing to go out and borrow money, and in turn spend.

The German preliminary CPI reading for September is expected to remain at -0.1%. The report will be posted at 1pm (UK time). 

At 2pm (UK time), the CaseSchiller reading of US house prices is expected to be 0.3% for July.

EUR/USD – has been moving lower since early September and while it holds below the 50-day moving average at 1.1789, the bearish move should continue, and it might find support at 1.1488, 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 1.3022, 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 105.84, the broader bearish move is likely to remain intact. 104.00 might act as support. A break above 105.84, could see it target 106.66, the 100-day moving average.