Equity markets bounced back yesterday as investors were encouraged to buy back into the market on the back of strong corporate earnings.
The major indices in Europe posted solid gains, and the FTSE 100 and CAC 40 closed above 7,000 and 5,000 respectively - both important psychological levels. Positive updates from Lloyds and UBS helped sentiment in Europe, but it is fair to say that the rally in the US dragged other markets higher too. After a choppy few days on Wall Street we saw buyers enter the fold. Twitter and Comcast were among the positive earnings stories of the day. Some dealers are wondering how long the positive mood will last given that the issues which sparked the sell-off are still relevant.
We heard from tech giants Amazon and Alphabet after the closing bell last night. Amazon topped the earnings per share (EPS) forecast, but missed on revenue and the guidance. Google’s parent, Alphabet, exceeded estimates on EPS, but undershot the revenue forecast. Both stocks dropped heavily in the post-market session, and in turn sparked selling across major US indices. Asian stock markets have been dragged lower by the sharp decline in US index futures.
US durable goods orders increased by 0.8% in September, and economists were expecting a drop of 1%. The previous report was revised higher from 4.4% to 4.6%. Stripping out transportation, the report registered a 0.1% increase, which undershot the consensus estimate of 0.5% growth. It is encouraging to see that spending is firm, as it will keep the economy motoring along. The jobless claims report came in at 215,000, broadly in line with expectations. The US jobs market is in rude health nonetheless. Today’s figures are unlikely to derail the Federal Reserve from their hiking plans.
President Trump will not be pleased with the latest trade figures, as the US good trade deficit reached a new record. Mr Trump might take this as a sign that the trade spat isn’t working, or he could decide to ratchet up the trade dispute with China in order to try and reverse the ever-increasing trade deficit. Given that the mid-term elections are drawing near, he might talk tough on trade as a way of garnering votes.
The European Central Bank (ECB) kept their monetary policy unchanged, and there was no surprise there. Mario Draghi, the head of the ECB confirmed the currency bloc is experiencing an economic slowdown, but it is not a downturn. The ECB are still planning to wrap up the bond buying scheme this year. Mr Draghi, discussed the standoff between the Italian government and the EU regarding the budget deficit, but seemed happy to observe from the side lines. The central banker said he was confident the situation will be resolved, which is a very safe thing to say in a tricky environment.
Mr Draghi, predicts that inflation will pick up near the end of the year. Even before the Italian situation, the ECB were talking about maybe hiking rates at the back end of 2019, so now it could be pushed back even further.
The feel good factor in global stock markets lifted the oil market too. To some extent the pessimism in stocks lately was weighing on oil, as dealers were fearful about the health of the global economy, and in turn the demand for the energy. Overnight, the oil market dropped as the Saudi Arabian OPEC governor said the market is heading for a state of oversupply in the fourth quarter.
At 7.45am (UK time) French consumer confidence will be released, and traders are expecting the reading to hold steady at 94.
The US third-quarter advance GDP reading will be released at 1.30pm (UK time) and economists are expecting a reading of 3.3% which would be a slowdown from 4.2% growth that was achieved in the second-quarter. The University of Michigan consumer sentiment index will be announced at 3pm (UK time) and dealers are expecting a reading of 99. Solid numbers might spark selling as fears of monetary tightening from the Fed might remerge.
EUR/USD – has been diving lower since late September and if it holds below the 1.1510/00 region, it could pave the way for the 1.1300 area to be retested. A move to the upside could run into resistance at 1.1618 – the 100-day moving average.
GBP/USD – the push higher since mid-August is starting to look weak, and if it remains below 1.3000, it could put 1.2785 on the radar. A rally above 1.3000, could bring the 1.3250 region into play.
EUR/GBP – has been in a downward trend since mid-August, and if the bearish move continues it could retest 0.8725. A break above 0.8881 – 100-day moving average, could bring 0.9000 into play.
USD/JPY – the upward trend that began in March is still intact, and if the positive move continues it might target 114.73. Support might be found at 111.50 – 100-day moving average.
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