nother rebound in oil prices and energy stocks saw US markets extend their gains last night and move closer to their all-time highs, despite some more mixed US economic data, as factory orders for September showed a decline of 1%, while we also saw a downgrade to the August numbers from -1.7% to -2.1%.
The offset to that was another strong rise in US auto sales to 18.2m in October,
a multiyear high with Toyota and GM in particular outperforming. While the resilience in auto sales is encouraging in that it suggests that consumers are spending again, it is also slightly misleading given that consumer loans have also been rising to record levels
, in line with the sales numbers.
This could be a worry if interest rates start to rise, which markets do appear to be pricing in again if long term yields on US bond markets are any guide, with the 10 year yield back above 2.2%, up over 15bps in the space of the last week.
In Europe today equity markets look set to take their cues from last night’s positive US session and open higher
ahead of another busy data day with the release of the latest services PMI’s data for October from Spain, Italy, France, Germany, the UK and the US.
Earlier this week some of the manufacturing data we saw from Europe was slightly better than expected and it seems likely that today’s October services data could be similarly positive.
Italy, Spain, France and Germany are all expected to see improvements to 55.5, 53.6, 52.3 and 55.2, just before ECB President Mario Draghi is expected to make a speech later this morning.
At the last ECB meeting Mr Draghi suggested that the central bank could well expand its current QE program and also potentially lower the deposit rate further, when it meets in December.
In comments reported over the weekend he appeared to row back from that slightly, only to then reiterate his ECB press conference comments in a speech yesterday evening. It therefore remains to be seen what hat Mr Draghi decides to put on today, but his deliberate ambiguity is neither helpful nor does it help the central banks credibility.
As for the UK we also get the latest October services PMI data
, and given the improvement seen in the manufacturing numbers earlier this week and the continued resilience of the construction sector, hopes are high that the start of Q4 looks promising for a strong end to the year.
In September we saw a sharp drop off in activity, but this could well have been a temporary lull ahead of the Rugby World Cup, which started at the end of that month. Given some of the resilience seen in some of the retail data for October we could well see an improvement in October to 54.6 from 53.3
In the US
investors will be looking towards the ADP employment report
as well as the latest ISM Services numbers for October
The ADP report is expected to show a decline from the 200k in September to 183k. As for the ISM non-manufacturing report a modest fall to 56.6 from 56.9 is expected.
While digesting these reports markets will also have to digest the utterances of a number of Fed speakers, including Fed Chief Janet Yellen
, as well as Fed doves Lael Brainard and William Dudley of the New York Fed.
While Ms Yellen’s thoughts will be of particular interest markets will also be focussing on the view of Ms Brainard given how dovish she was in her previously reported comments, and whether she still believes that economic risks are “tilted to the downside”.
– the euro has continued to drift back towards last week’s short term base around the 1.0900 area, with the main support down at the May and July lows at 1.0820. We need to see a recovery back through 1.1115 to stabilise the current downward momentum.
– having peaked again at resistance at 1.5510, the October highs and 200 day MA remain the key obstacles to a move towards 1.5630. Long term trend line support at 1.5215 from the 1.4565 lows remains a key level as does yesterday’s low at 1.5360.
– continues to look weak the euro remains on course to open up a larger move towards 0.7075. Resistance remains at 0.7150 after failing to push back above it earlier this week.
– the September highs above 121.70 continue to act as strong resistance. Above 122.00 could suggest a return to the 124.00 area. We have support at the 120.20/30 area, with a break retargeting the 119.20 area.
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