14 Oct: Risk-off mood returns despite some decent US banking results. Focus today on further Q3 numbers, Trump/Biden headlines.

14 Oct: Risk-off mood returns despite some decent US banking results. Focus today on further Q3 numbers, Trump/Biden headlines.

Despite some impressive Q3 results from JPM and from Citigroup, stocks headed into reverse on Tuesday, with the focus of traders being on the news that Johnson and Johnson have halted their Covid vaccine trials because of an adverse reaction from a volunteer patient, and also because any US stimulus agreement remains elusive which is weighing on sentiment just as the Q3 earnings season kicks off. Despite their results, JPM and Citi led the way lower, down by 2% and 4% respectively, while J+J also beat their Q3 expectations but saw their shares fall by 2.5%. As far as the indices go, the S+P and the DJI both lost around 0.5%, while the Nasdaq fell by just 0.1%. Apple fell 2.65% (having risen by 85% this year!) after holding a virtual event where it unveiled the companies new iPhone models.

In the FX markets, the US$ is firmer, with the DXY putting on 0.5% as traders reversed the recent positive risk sentiment once J+J halted their Covid testing programme. This weighed on the Euro (not helped by a poor ZEW result, see below) and the Aud$ in particular, while Sterling also took a hit in falling back below 1.30 after UK PM Boris Johnson chose to ignore scientific advice and imposed a 3-tier Covid lockdown in the UK as contagion and death rates continue to soar. Sterling also received no help, either from the August jobs data which saw UK unemployment rise to 4.5%, up from 4.3%, above expectation of 4.3%, or from the never-ending Brexit arguments between the UK and the EU, which saw further antagonistic soundbites on Tuesday.

In the commodities area, Gold and Silver both headed south, under pressure from the firmer US$, while Oil recovered some of the recent losses, up by 1.8% on the day, underpinned by yesterday’s surging import/export Chinese trade data showing a rise in Chinese crude oil imports in September, which provided support through the session.

In other major data on Tuesday, the main event was the US inflation result, which saw the September CPI rise 0.2%mm in September, matching expectations. Earlier, from the EU, the October ZEW was released, showing that the German ZEW Economic Sentiment dropped sharply to 56.1 in October, down from 77.4, missing expectations of 74.0, while the Current Situation Index improved to -59.5, up from -66.0, slightly better than the expectation of -60. The Eurozone ZEW Economic Sentiment dropped to 52.3, down from 73.9, well below expectation of 70.5, while the Current Situation index rose by 4.3 pts to -76.6.

Wednesday will have a relatively thin calendar but will see the Australian October Consumer Confidence and the August New Home Sales. Later in the day ECB Speakers will dominate the European session (Lagarde, Lane, Mersch), along with the EU Industrial Production (Aug) while the US will focus on the September PPI (exp +0.2%mm), with Fed speakers Kaplan and Quarles also on the agenda.  The Q3 reporting season ramps up, with today’s focus being on BOA, Goldmans, Wells Fargo, BHP. Have a good day.

Economic data highlights will include:

Wed: Australian New Home Sales, WBC Consumer Confidence, Japan Industrial Production, Capacity Utilisation, EU Industrial Production, US PPI, BOE Haldane Speech, ECB Speakers; Lagarde, Lane, Mersch, Fed Speakers; Kaplan, Quarles

Market moves, in brief:

FX: DXY 93.53 (+0.53%)

Bonds: US10Y; 0.726% (-6.42%), German 10Y; -0.556% (-2.49%), UK 10Y; 0.237% (-12.89%), Australian 10Y; 0.860% (+1.91%), NZ 10Y; 0.598% (+2.75 %), China 10Y; 3.195% (+0.44%)

Stock Indices: DJI; -0.55%, S+P; -0.35%, NASDAQ; -0.10%, EUStoxx50; -0.57%, FTSE100; -0.53%, Shanghai Composite; +0.04%, ASX200SPI: -0.2%

Metals: Gold $1892 oz (-1.56%), Silver $24.15 oz (-3.80%), Copper $3.0450 lb (-0.65%), Iron Ore $120.50 per tonne (NYMEX) (+0.50%),

Oil: WTI $40.18 pb (+1.78%)


Trend Table: October 14, 2020                                                       

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1 HourPossible Basing FormationNeutral – Turning Lower?DownUpTurning Lower?Neutral
4 HourTurning Lower?Neutral – Turning Higher?Turning Lower?Turning Higher?Turning Lower?Turning Neutral
1 DayNeutral – Turning Higher?Turning NeutralNeutral – Turning Higher?Neutral – Turning Lower?Turning NeutralNeutral
1 WeekPossible Topping FormationTurning NeutralTurning NeutralPossible Basing FormationPossible Topping FormationPossible Topping Formation
1 HourPossible Topping FormationTurning LowerNeutral – Turning Lower?DownTurning LowerTurning Higher?
4 HourTurning HigherPossible Topping FormationPossible Topping FormationTurning Lower?Turning Lower?Neutral
1 DayTurning NeutralNeutral – Turning Higher?Neutral – Turning Higher?Neutral – Turning Higher?Neutral – Turning Higher?Neutral
1 WeekPossible Basing FormationUp – OverboughtTurning NeutralTurning LowerTurning LowerNeutral
1 HourTurning LowerTurning HigherNeutral – Turning Lower?Neutral – Turning Lower?Turning NeutralTurning Lower
4 HourNeutral – Turning Lower?Turning NeutralNeutralNeutral – Turning Lower?Turning NeutralTurning Lower?
1 DayTurning NeutralTurning NeutralTurning NeutralTurning NeutralNeutralTurning Neutral
1 WeekTurning NeutralTurning NeutralTurning NeutralPossible Topping FormationTurning NeutralTurning Neutral


The ASX SPI, having hit a 7 month high of 6204, just taking out the June 8th peak of 6199 and making a double top in the process, is now down by around 0.5% and does look a little heavy in the short term. With the longer term charts looking mildly positive though, I still prefer to look for levels to buy dips and for the coming session support should arrive at 6125 (minor), 6105 (100 HMA) and at 6083 (23.6% of 5703/6204). Further out, the 38.2% Fibo level is at 6012.

On the topside, resistance will still be seen at the 100 WMA, sitting right ahead at 6180, and we need to close above this in order to gain confidence of a larger move higher. Above the 6204 Tuesday high though, would suggest to me that we may possibly be carving out a bull flag, which could eventually allow a return to the all-time high at above 7100. As we said yesterday,  if 6150/80 proves insurmountable I the medium term, then we should expect a move back towards 6000 and further choppy, sideways trade and I suspect that the market will be heavy today, but I would be looking for the dips to buy into in preparation for another test of the topside. All of this really depends on the outcome of the US stimulus talks and the ability to find a virus vaccine, not to mention the US election, so it may end up being quite choppy for a while as we head towards November 3rd.  Day traders are likely to trade from the short side, while medium term players may want to stand aside to await a better buy opportunity.

4 hour


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