FTSE 100 +5 points at 7531 DAX +2 points at 13005 CAC +8 points at 5370 IBEX -18 points at 10163
Appetite in the US stocks remains tight. The Dow Jones (+0.37%), Nasdaq (+0.18%) and S&P 500 (+0.28%) refreshed record on Monday. Wall Street banks gained 2%. Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) will release 3Q earnings today. Goldman Sachs warned investors that 3Q FICC (Fixed Income, Currencies and Commodities) revenue may have eased compared to last year’s, provided the extraordinary performance during the Brexit and the US presidential election. Morgan Stanley is focused on equity trading and may have outperformed its peers due to the unprecedented rally in the stock markets.
Asian stocks traded in the green. Nikkei (+0.27%) and Topix (+0.14%) trotted higher, Hang Seng index (+0.19%) added timid gains, Shanghai Composite (+0.02%) appeared to be barely attractive to foreign investors before the China Communist Party (CCP) congress due to start on October 18. Australia’s ASX 200 (+0.73%) outpaced thanks to inflows in mining stocks (+1.13%). Iron ore futures eased by 2%, although the daily MACD (Moving Average Convergence Divergence) indicator turned positive following 10% rebound from the October 12 bottom.
Risk-on trading environment pulled the ounce of gold below $1’300 level. The sentiment turned neutral. The October rebound could meet support at $1’288 (major 38.2% retracement) as a part of risk-averse investors would remain seated on safe-haven holdings due to global political and geopolitical risks.
The USD/JPY saw support at 111.65. Marginally strong US dollar helped the USD/JPY holding the ground. However, yen traders may be reluctant to move into foreign currency allocations on the run up to the October 22 snap election in Japan. There are put options at 112.00 at today’s expiry. This level distinguishes between call and put options as investors seem to be hedging for both the upside and downside risks in yen before and after the election. In the short-run, the limited risk appetite could encourage a correction toward 111.40/110.95, a buffer area including 50, 100 and 200-day moving averages.
The Aussie traded below its 100-day moving average (0.7865) as the Reserve Bank of Australia (RBA) minutes warned against the Aussie appreciation and high household debt. Australian interest rates will likely remain stable in the foreseeable future. The RBA/Federal Reserve (Fed) divergence plays in favour of a further downside correction in AUD/USD. The key resistance to the September – October downside correction is presumed at 0.7882 (major 38.2% retracement).
UK inflation is the major macro event of the day. British consumer price inflation may have hit the critical 3% threshold in September. A solid inflation read could revive speculation that the Bank of England (BoE) may raise interest rates as soon as the next monetary policy meeting. BoE Governor Mark Carney will testify before the Treasury Select Committee today and is expected to voice his opinion on whether the UK economy could handle higher interest rates through the bumpy Brexit process. So far, Carney tolerated the rise in inflationary pressures due to the ‘Brexit situation’ and anticipated easing in price pressures as a result of the widening gap between price and wages inflation. With the inflation at the critical 3% level, the BoE would be left with no maneuver margin for keeping the rates at the historical low level. The market assesses 81.8% probability for a November rate hike. This is up from roughly 20% in the beginning of September. The pound is subject to upside risks. A solid inflation could boost the GBP-bulls for a renewed attempt on 1.3342 (Fibonacci 50% retracement on September – October decline), while an unexpected downturn in inflation could encourage a deeper correction to 50-day moving average (1.3196), before 1.3175 (minor 23.6% retracement) and 1.3086 (100-day moving average).
The FTSE 100 is set for a positive open. The pound’s value could either boost buyers or encourage sellers following the hotly-anticipated inflation data.
The EUR/USD extended losses to 1.1767. It is still unclear whether Catalonia declared independence. This said, Catalonian President Puigdemont is gradually losing credibility. Traders sent IBEX down to 10154.30 on Monday and is expected to open lower on Tuesday. The DAX (+0.09%) and the CAC (+0.21%) saw no impact and are set for a flat-to-positive open. The major risk is Spain taking control on Catalonia if Puigdemont clarifies his independence position. The EUR/GBP is pushing downwards. The formation of a death cross on the hourly chart on Monday (50-hour moving average crossing below 200-hour moving average) has certainly increased the selling pressure. Intra-day resistance could be found at 0.8925 (100-hour moving average) and 0.8931 (200-hour moving average).