It has been a mostly choppy and sideways session in the FX markets on Wednesday although Sterling, which had stopped out the longs (including me!) by early European trade, in falling below the 1.2900 level on concerns over the deadlock in Brexit negotiations, has since turned sharply higher on talks that UK will continue to engage in negotiations with the EU after its self imposed mid-October deadline to sort out a trade deal. The other real interest was in the Jpy, which saw some safe-haven demand build, especially after US Treasury Secretary Mnuchin said that a Covid-stimulus deal is unlikely to be in place before the election, which only added to fragile sentiment through the session following some mixed Q3 earnings results from major banks. Goldman Sachs doubled their Q3 profits and reported better-than-expected earnings and revenue but BOA and Wells Fargo both missed estimates, with senior executives taking a cautious stance in warning that losses on various types of loans might not really take shape until next year.
Stocks are also lower on the day as traders lock in some profits because of the mixed bag of results from the banks, with the major US indices all down by around 0.5%/0.7%. BOA and Wells ended down by around 4% although the rest of the banking sector was more or less flat on the session.
WTI put on 2%, which came about despite the risk-off mood, but was underpinned by the improving demand outlook from China and from increased Indian refining activity. Gold and Silver initially rose sharply due to a mildly weaker US$ but then gave back some of those gains after Mnuchin cast doubts that a stimulus deal would get done before the election.
Looking ahead, the early focus on Thursday will be on the China September CPI/PPI (CPI; exp +0.3%mm, +1.8%yy, PPI; -1.8%yy) and the Australian September Unemployment figures (exp 7.1%, -35K). Also coming up in Australia will be a speech by the RBA Governor, Philip Lowe, who will put some context around the recent Federal Budget, while also hopefully providing some light on the prospect of a November 3rd rate cut (which would coincide with the US election, and more importantly the Melbourne Cup!) Later in the day, there is nothing to come from Europe, while from the US we get the weekly jobless claims (Initial 825K/Continuing 10.7mio), the Philadelphia Fed Mfg Survey (Oct; exp 14; Prior 15) and the New York State Empire Mfg Index (exp 15; Prior 17). The EIA Weekly Crude Stocks Change is also due.
Economic data highlights will include:
Thur: NZ Credit Card Spending, Australian Unemployment, Consumer Inflation Expectation, NAB Business Conditions/Confidence, RBA Governor Lowe – Speech, China CPI/PPI, UK Credit Conditions Survey, UK Autumn Forecast Statement, US Philadelphia Fed Mfg Survey, Weekly jobless claims, New York State Empire Mfg Index, Import/Export Index, EIA Weekly Crude Stocks Change.
Market moves, in brief:
FX: DXY 93.35 (-0.20%)
Bonds: US10Y; 0.722% (-0.67%), German 10Y; -0.578% (-4.03%), UK 10Y; 0.016% (-6.92%), Australian 10Y; 0.849% (-1.30%), NZ 10Y; 0.588% (-1.57 %), China 10Y; 3.22% (+0.79%)
Stock Indices: DJI; -0.58%, S+P; -0.43%, NASDAQ; -0.80%, EUStoxx50; -0.18%, FTSE100; -0.58%, Shanghai Composite; -0.56%, ASX200SPI: +0.05%
Metals: Gold $1903 oz (+0.67%), Silver $24.26 oz (+0.57%), Copper $3.0525 lb (+0.39%), Iron Ore $120.13 per tonne (NYMEX) (-0.18%),
Oil: WTI $41.05 pb (+2.18%)
Trend Table: October 15, 2020
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|1 Hour||Neutral – Turning Lower?||Down||Up||Turning Neutral||Turning Neutral||Neutral|
|4 Hour||Turning Neutral||Turning Lower?||Neutral – Turning Higher?||Turning Neutral||Turning Neutral||Turning Neutral|
|1 Day||Turning Neutral||Turning Neutral||Turning Neutral||Turning Neutral||Turning Neutral||Neutral|
|1 Week||Possible Topping Formation||Turning Neutral||Turning Neutral||Possible Basing Formation||Possible Topping Formation||Possible Topping Formation|
|1 Hour||Turning Neutral||Turning Lower||Turning Neutral||Turning Neutral||Turning Neutral||Up|
|4 Hour||Turning Neutral||Turning Lower||Turning Lower||Turning Neutral||Turning Neutral||Neutral – Turning Higher?|
|1 Day||Turning Neutral||Neutral – Turning Higher?||Neutral – Turning Higher?||Turning Neutral||Turning Neutral||Neutral|
|1 Week||Possible Basing Formation||Up – Overbought||Turning Neutral||Turning Lower||Turning Lower||Neutral|
|1 Hour||Turning Lower?||Down||Up||Neutral – Turning Lower?||Turning Neutral||Turning Higher|
|4 Hour||Down||Neutral – Turning Lower?||Neutral||Neutral – Turning Lower?||Turning Neutral||Turning Lower|
|1 Day||Turning Neutral||Turning Neutral||Turning Neutral||Turning Neutral||Neutral||Turning Neutral|
|1 Week||Turning Neutral||Turning Neutral||Turning Neutral||Possible Topping Formation||Turning Neutral||Turning Neutral|
Markets are looking pretty choppy and undecided on Thursday, as is seen by the amount of blue on the heat map. Having been stopped out of my Sterling trade, I have no real view on anything and suspect that these directionless conditions in the FX markets may well continue until the US election, with the price action driven by the latest headlines coming from the Presidents Twitter account along with any progress, or otherwise, on a US Covid-support package/Brexit/Covid.
The Australian dollar may see some interest today on the back of the Governors Speech and from the domestic Unemployment/China CPI figures but the charts are showing little directional bias.
The US stock indices look a little heavy in the short term and may have some downside momentum although the longer term charts remain constructive.
The ASX SPI needs a weekly close above the double top at 6200 (6185=100 WMA) in order to build confidence of further upside momentum.
Oil is looking interesting again, but WTI needs to overcome strong resistance in the 41.50/42.00 area, which in turn lies ahead of even stronger resistance at 43.00/44.00. The daily charts remain flat, so further sideways trade is entirely possible.