FTSE -10 points at 7532 DAX flat at 13043 CAC -6 points at 5377 IBEX -13 points at 10260
China’s Communist Party congress and President Xi’s speech occupy the headlines and bring the Chinese data forward this week. Freshly released today, China’s 3Q GDP growth came in at 6.8% as expected, retail sales expanded by 10.3% year-on-year in September, faster than 10.2% expected by analysts and the industrial production surged to 6.6% from 6.0%, beating analyst estimates of 6.5%. Good news barely boosted the appetite in Chinese stocks. Hang Seng traded flat, as Shanghai’s Composite eased 0.45%. Metal prices edged lower, copper cheapened for the second day after :Barclays warned that the trading could be above its fundamentals.
The Dow Jones (+0.70%) extended gains to 23’172 on Wednesday and closed the session above the 23000 level for the first time. The solid US earnings season is building a strong case for a hawkish Federal Reserve (Fed) policy and should help easing concerns on soft inflation. 60 out of 498 companies in S&P500 released results so far and earnings positively surprised by 4.68%, nearly one fourth of the Dow Jones and ten percent of the NASDAQ companies announced earnings as well and surprised investors by 6.37% and 5.62% respectively.
Bank of New York Mellon (NYSE:BK) and Phillip Morris are among companies releasing results today.
Risk-on environment weighs on gold. The precious metal is preparing to test the 100-day moving average ($1’275) on the downside.
The USD/JPY traded past 113.00 in Tokyo, as the divergence between the Federal Reserve (Fed) and the Bank of Japan (BoE) policy outlooks continues playing in favour of a softer yen in the absence of risk-off inflows. Japanese trade balance surged from 113.6 billion to 670.2 billion yen in September versus 556.8 billion expected by analysts. Good data is good news for PM Shinzo Abe before the October 22 snap election. The market is pricing in a satisfactory outcome for Abe, who promises decent government spending on top of a loose monetary policy for longer. The yen will likely remain under pressure under Abe’s rule. Disappointment is the major downside risk into the election weekend. Some investors may be reluctant to stay short-JPY before Sunday’s election and this could cap the appetite past 113 level. Decent put options stand at the distant 110.00 for the hedging of an eventual slide in USDJPY.
In Australia, the slump in iron ore futures (-3.81%) combined to poor Australian employment data capped the AUD/USD at 100-day moving average (0.7870), despite the spike in Aussie rates. Although the unemployment improved from 5.6% to 5.5%, the Australian economy added only 19’8000 new jobs in September versus 53’000 a month earlier and nearly 70% of new jobs were part-time. Still, risk-on investors could find the AU/US differential interesting despite the selling pressure on iron ore prices and jobs data. The next natural target for AUD-bulls is 0.7900/0.7910 against the US dollar, including the 50-day moving average. There is a double bottom formation at 0.7818 (major 38.2% retracement on May – September rise), which should distinguish between a further downside correction toward the 200-day moving average (0.7705) and a consolidation/advance targeting the 0.80 mark. We note that the Reserve Bank of Australia (AUD) is concerned by a strong currency and would be tempted to keep its policy loose to counter the AUD-bulls. Therefore, sellers could take over the market approaching the 0.80 psychological level.
The pound is undecided, although there couldn't be a better scenario for the Bank of England (BoE) hawks than an inflation hitting the 3% level and slightly improved wages. Traders could be seeking a bottom as the probability of a November rate hike stands above 80%. UK retail sales data is in focus today. Expectations are soft. The consensus is -0.1% change month-on-month in September versus +1.0% printed a month earlier. Soft data could weigh on Cable, especially after the GBP-positive data failed to set the tone for a stronger pound earlier in the week.
The FTSE 100 benefited from the lack of appetite in pound and firmer oil prices on Wednesday. Energy stocks gained 1.10% as WTI crude found buyers below $52 per barrel amid US oil inventories fell by 5.7 million barrels last week versus 4.7-million-barrel contraction expected by analysts. UK stocks are set for a softer open in London.
The EUR/USD hovers around the 1.18 mark on mixed sentiment before the Catalonia deadline. Catalonia has until 10 a. m. local time to step back from its independence claims, if not Madrid could take control over Catalonia. The EUR/USD will likely meet resistance into 1.1880 (Fib 50% retrace on Sep – Oct decline and last week resistance), IBEX could be subject to a higher price volatility compared to its European peers.