Stock markets were a bit of a mixed bag last week with gains for UK markets, but losses in Europe and the US, with the weak pound the catalyst for the outperformance of UK stocks. Stock markets in Asia, the ones that were open anyway, appeared to be preoccupied with the second instalment of the Clinton/Trump debate, with Republican candidate Donald Trump seemingly intent on pressing the self-destruct button on his campaign, and alienating his own party in the process.

While Mr Trump appeared to hold his own in the debate the tone showed no signs of becoming any more civilised. Against this sort of backdrop its hard to see how Hillary Clinton can lose, which may offer some comfort to investors, given that in a lot of quarters she is perceived as the lesser of two evils, and a pretty poor candidate.

Despite making a new 31 year low in the wake of last week’s flash crash, below the 1.2000 level, the pound managed to rebound some way from these lows, but still managed to post its worst week since the Brexit vote in June. The big question now is whether we’ve seen the lows in the short term or whether we can find a bit of stability after last week’s rather large air pocket.

One thing is certain, given Friday’s sharp drop any one tempted to try and pick the base in the pound will have found their optimism disavowed with last week’s drop which means any gains in the short term are likely to be hard won, even with the record short positions currently in play.

That’s before markets even try and price in the ongoing political uncertainty that it is bound to be caused by the megaphone diplomacy on both sides of the Channel.

Friday’s late sterling recovery was helped in some part by a slightly disappointing, US labour market report which caused the US dollar to unwind some of its gains for the week. It did however still manage to close at its highest levels since late July, largely on the prospect that we remain on course for the US Federal Reserve to raise interest rates by the end of this year, data permitting.

The September report was one of those “goldilocks” reports that was underwhelming in its ordinariness with a 156k headline number and fairly muted wages growth. It keeps the prospect of a November move, very much off the agenda, even though the prospect of such a move is unlikely in any case.

Fed vice Chairman Stanley Fischer’s comments over the weekend that the jobs report was a solid one and that the September “hold” was a close call, will come under closer examination later this week when the Fed minutes are published. Given the 3 dissenters the debate is likely to have been particularly interesting, given that the doves carried the day. Mr Fischer also insisted that there appeared little danger of the Fed falling behind the curve on inflation despite the continued rise in oil prices.

US markets closed slightly lower last week as they continue to struggle for direction in the face of continued uncertainty about whether they can break the cycle of declining earnings.  The start of Q3 earnings season this week could well be instructive in that regard with the big US banks set announce their latest numbers, though they are doing much better than their European rivals.

On that subject Deutsche Bank hasn’t as yet been able to come to any agreement with the US Justice Department as it looks to overcome the hurdle of the prospect of a rather large fine. Talks are continuing while the bank looks at potentially spinning off a stake in its asset management division in order to free up some extra capital.

EURUSD – despite making a 7 week low last week the euro continues to drift sideways, between 1.1100 and 1.1300. Hoping for a move one way or the other but little clue as to which way right now.

GBPUSD – a flash crash last week saw the pound plunge below 1.2000 and another 31 year low. We need to recover back above the 1.2500 area, and regain a foothold back above 1.2850 to stabilise.

EURGBP – flashed up towards 0.9300 last week before snapping back and trading either side of the 0.9000 level. Support sits all the way back down at the 0.8780 level delays and argues for a move back towards the 0.8720 level.

USDJPY – the US dollar failed to push through the September highs at 104.30 and fell back sharply. If it falls back below support in the 102.20 area we could well slip back further towards 100.00. For the up trend to continue we need to push back above 104.30.

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