Global Commentary
Although several large Asian markets remained closed Monday, the rest of the region began the fourth quarter on strong footing. Mainland China was closed Monday and will remain closed all week, but the Chinese government still released its read on manufacturing PMI over the weekend. With the reading coming in at a more than five year high investors across Asia were encouraged by the strong growth. Australia saw broad based gains across all sectors. Strength from the USD was another factor helping to lift markets. Hong Kong was also closed for trade Monday, but it will reopen on Tuesday. European markets finished broadly higher for the eighth consecutive session Monday as the Euro slid lower against the USD following the violence surrounding the weekend Catalonian succession vote. Understandably, while markets across most of Europe gained on the Euro weakness, the IBEX 35 in Spain was 1.2% lower in response to the weekend violence. London’s FTSE also finished the day higher, with the Pound sliding following weaker than expected British manufacturing data. Optimism over the upcoming fourth quarter sent U.S. benchmark indices to new record highs Monday, even as the U.S. suffered the worst mass shooting attack ever, which President Trump referred to as an “act of evil”. In economic news the ISM manufacturing index came in at its highest level in 13 years, with a reading of 60.8 versus expectations for a much lower 58.8 reading. Construction spending also rose 0.5% in September, confirming that the U.S. economy continues to strengthen.
FOREX
EUR/USD
The pair dropped Monday in reaction to the weekend violence in Spain, where more than 800 people were injured by Spanish police attempting to keep them from voting in the Catalan succession referendum. With roughly 90% support for the succession it is expected that Spain will see increasing turmoil which could spread throughout Europe. The 1.1700 level did hold as support for the time being, but could be tested again today.
GBP/USD
The pair dropped sharply on Monday, losing 140 pips at its lowest level before rebounding somewhat at the end of the session. The drop saw the pair slicing right through 1.3300 as traders reacted to a weaker than expected U.K. manufacturing, and a stronger than expected U.S. manufacturing. The pair is likely to test 1.3200 for support in the coming days.
Cryptocurrencies
The cryptocurrency space was mixed Monday, as it had early strength, but fell in afternoon trade, leading to losses for Ethereum and Litecoin, but a small gain for Bitcoin, which had briefly traded back above $4,400 in morning trade. Ethereum dropped back below $300, and Litecoin appears ready to test $50 for support.
Commodities
Metals
Demand for precious metals continued to be dulled by a rising USD and the strength in equity markets on Monday. As a result, gold ended the session near a two month low. This weak beginning to the fourth quarter comes after gold fell some 2.7% in September, although it was up by roughly 3.6% in the third quarter. Continued bullishness for the USD and rising U.S. Treasury yields promise to keep pressure on gold in coming weeks.
Oil
Crude retreated on Monday, falling to a one-week low as traders learned that OPEC compliance with production cuts has fallen in the past month. The stronger USD was also having a negative impact on crude, which is priced in USD, causing prices to soften when the USD strengthens.
Indices
Dow Industrials
The Dow gained 0.7% on Monday, hitting a new record closing high as investors appetite for equities has shown no signs of waning. Leading the charge higher were gains for Goldman Sachs Group (NYSE:GS), who said they are considering opening a cryptocurrency exchange, just two weeks after JPMorgan (NYSE:JPM) CEO Jamie Dimon called Bitcoin “a fraud”. Gains on the index were broad based, with only 5 of the 30 Dow components ending the day in the red.
IBEX 35
The benchmark Spanish index slid 1.2% lower Monday as investors pulled back following the weekend violence sparked by a succession referendum in Catalonia. Over 800 voters were injured by Spanish police who were trying to stop the voting, which had been declared illegal by the Spanish government. Early reports show 90% of Catalonians support succession, which could spark further instability in Spain. Banking shares were the worst hit by the selloff Monday, and will almost certainly see further downside in the wake of a Catalonian succession.
Stocks
Goldman Sachs Group
The stock has been rallying strongly in September as investors bet on an interest rate hike by the end of the year. The move has taken the stock out of the range bound trade seen for six months, where the stock was stuck between $225 and $233. The stock gained further on Monday, topping $239, and we expect to see it continue trading up to test the resistance at $250 soon.