by Pinchas Cohen
Key Events
Stellar profits reported on Friday by Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL) sent the tech-heavy NASDAQ 100 to a record on its biggest gain since March 2016. The NASDAQ Composite completed a fifth straight week of gains, while the Dow Jones Industrial Average and the S&P 500 Index both completed a seventh straight week of gains.
It was the 49th record for the year for the S&P. Investors can't seem to stop buying the dips, no matter how shallow.
The extraordinary profits were underscored by the strongest consecutive quarters of GDP growth in 3 years. Treasuries rose on speculation President Donald Trump would appoint Fed Governor Jerome Powell as next Fed Chair. Since he's considered dovish, current rates suddenly appeared more attractive.
Catalan lawmakers continue to buck Spain's move to impose direct rule on the region as they stubbornly push independence. The euro, already down on ECB President Mario Draghi’s rhetoric of an open-ended, near-zero rate, was kicked even lower as the standoff continued. Spanish equities, already in a downtrend slid further.
In direct contrast, the Stoxx Europe 600 Index is in an uptrend on European companies reporting twice the growth rate of their US counterparts.
Global Financial Affairs
This morning, Asian equities started the week mixed. After much fluctuation, Japanese stocks closed with no change. Chinese stocks were sold-off and China's 10-year bond yield jump to its highest in three years, on reawakened fears of yet tighter regulations, to reduce leverage in the financial sector. The decline of confidence gauges of smaller companies and manufacturing activity may suggest that the solid economic reads China has enjoyed through most of this year could soften as we head into year's end.
Investor uncertainty seen this morning in Asia made it to Europe, as a drop in mining shares offset tech and telecommunication share gains. Spanish stocks and bonds were outperforming the region at the open, as the Madrid government appeared to be taking control of the situation after Catalonia’s declaration of independence. The next battle between Spain and the Catalan separatists could be regarding which side regional public employees choose.
The streets of Barcelona were already flooded with hundreds of thousands of pro-unity demonstrators, the equivalent of British Remainers after the Brexit vote, pressuring local lawmakers who sided with Catalan separatists in defying Madrid. Prime Minister Mariano Rajoy on Friday ousted Catalan’s President Carles Puigdemont and dissolved his government after it declared independence.
Also on Friday, S&P upgraded Italy’s credit rating, sending the FTSE MIB higher this morning, while the Stoxx 600 declined.
Crude oil extended a rally to a 6-month high, after Saudi Arabia’s crown prince Mohammaed bin Salman supported extended OPEC production cuts, but has been in a decline since the higher opening price, which failed to climb above Friday’s high. The price has reached both the top of its rising-channel – the line representing the resistance provided by oversupply – as well as the thick congestion between December and March.
Congestion means many traders had a dog in that fight. They are likely to have an opinion on the trajectory of the price. At this point, the congestion is likely to form a resistance as most traders are inclined to believe the price will fall at this price level, rather than climb. Who could blame them after the near-24 percent plunge between December and July?
After US markets finished the week with a dizzying rally that produced new records, this week's earnings reports from some of the world’s largest companies including Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB) and Tesla (NASDAQ:TSLA), need to provide the fuel with which to continue pushing these stratospheric prices.
Up Ahead
8:30: US – Core PCE Price Index (MoM) (Sep): expected to remain steady at 0.1 percent.
While the dollar completed a H&S bottom, it penetrated less than one percent from the neckline, and is coming up against the downtrend line since the end of the Trump Trade in March, opening up the possibility of at least a return move if not a pattern failure.
19:30: Japan – Unemployment Rate (September): expected to remain at 2.8%.
The USDJPY pair is between a rock and hard place: resistance of 114.50, from where it fell 5 percent between May and June, and 6 percent between July and September, and the congestion formed between September 21 the October 20 breakout. The trajectory is for the pair to remain rangebound between 114 and 113.50 till a breakout occurs.
The way everything is lining up for the dollar, strongest consecutive quarter GDP in 3 years, record equity market highs denoting investor appetite for risk over havens such as the yen, removal of central bank accommodation as opposed to Japan’s open ended accommodative policies after Shinzo Abe’s landslide victory and the outlook for US tax reform to boot, cumulatively makes a strong case why the JPY114 resistance will be broken, as opposed to a return to 107.
23:00: Japan – (Tentative) BoJ Rate Decision and Quarterly Outlook Report (Tentative): Interest rates likely to remain on hold. Keep an eye out for changes to the interest rate forecasts.
Market Moves
Stocks
- Japan’s TOPIX and the Nikkei 225 closed flat in Tokyo.
- South Korea’s KOSPI gained 0.2 percent
- Australia’s S&P/ASX 200 Index rose 0.3 percent.
- The Shanghai Composite Index fell 0.8 percent. The Hang Seng Index in Hong Kong declined 0.1 percent.
- The Stoxx Europe 600 Index fell 0.1 percent as of 8:15 London time (4:15 EDT).
- The U.K.’s FTSE 100 declined 0.3 percent.
- Germany’s DAX climbed 0.1 percent to the highest on record.
- Spain’s IBEX Index gained 1.2 percent.
- S&P 500 Futures dipped 0.2 percent.
Currencies
- The Dollar Index decreased 0.28 percent.
- The euro increased 0.2 percent to $1.1626.
- The British pound gained 0.3 percent to $1.3164.
Bonds
- The yield on 10-year Treasuries decreased less than one basis point to 2.40 percent.
- Germany’s 10-year yield climbed one basis point to 0.39 percent.
- Britain’s 10-year yield increased one basis point to 1.348 percent.
- China's 10-year yield climbed 6 basis points to 3.90 percent, the highest point for the sovereign bond since 2014
Commodities
- West Texas Intermediate crude climbed 0.1 percent to $53.98 a barrel, the highest in more than six months.
- Gold dipped 0.3 percent to $1,270.00 an ounce.