Financial market research and analysis

Asian stocks kicked off the week on a positive note, after the US stock markets closed last week near all-time highs on largely better-than-expected company earnings. The US dollar gained against all G10 currencies.

Nikkei gained on softer Japanese yen. Hang Seng index rallied 1.19% despite another weekend of protests in Hong Kong. Shanghai’s Composite added 0.72%.

HSBC, however, missed analyst estimates in the third quarter and announced significant restructuring charges as part of its struggle with weakening global outlook.

FTSE futures slipped below the 7300p following the HSBC’s miss, hinting at a soft start in London.

Elsewhere, the US 10-year yield advanced to 1.80%, while gold held support above the $1500 an ounce.

More US companies will reveal earnings this week, including Alphabet on Monday, Apple and Facebook on Wednesday.


Goooooooogle

Alphabet will release its third quarter earnings after the market close and the expectations are solid. Google’s earnings are expected to have increased to $12.317 per share, versus $11.660 printed a quarter earlier. Google is gaining momentum on its cloud business and have recently announced significant improvements on its research engine. The company said on Friday that its new research system relies on artificial intelligence to parse complex sentences, instead of a suite of key words.

As such, Google has probably not been jammed by the slowing global conjuncture, even less by the US-China trade war, because its services are already fully blocked in China. Although, the company has its own headaches with the ongoing antitrust allegations, investors continue believing in Google’s power to post continued strength in revenues.

87% of analysts surveyed by Bloomberg recommend buying the Google stock, 13% remain on hold with a twelve-month average target price of $1426. There is no sell recommendation.

Hence, good results could send the Google’s share price to fresh all-time highs, above the $1300 tested in April, and boost gains across the US tech stocks.


A hawkish rate cut for the Fed?

The Federal Reserve (Fed) is expected to lower its interest rates by another 25 basis points on Wednesday with 90% probability according to the activity on the US sovereign markets. While lower rates should give a piece of mind to investors about the slowdown worries amid trade tensions, the record-high equity prices raise some questions about the future of the Fed’s policy. With the S&P500 up by 30% since its December dip, the Fed could be tempted to take a pause after this week’s cut. A hawkish rate cut, on the other hand, could curb the appetite in equity and bond markets, and push the US 10-year yield toward the 2% mark.


Oil markets fueled by lower output prospects, improved risk appetite

WTI crude peaked at $56.85 a barrel on increased risk appetite. Buyers are slowly taking over the reins of the market on expectations that OPEC and its allies would announce further production cuts at their December meeting.

US oil inventories data published on weekly basis could cause some volatility in short-term prices, but the overall outlook turns encouraging for long positions. The net speculative long positions in crude increased in the NYME during the week that ended on 22 October, yet the actual net long positions are still near four-month lows.

Energy stocks (+0.86%) led gains in Sydney on Monday.

In the UK, investors’ attention turns to British energy company’s third quarter performances. BP and Royal Dutch Shell are due to release their third quarter results on Tuesday and Thursday respectively. Expectations are low as the weakening global demand may have taken a toll on British oil giants’ profits during the third quarter.


D-3

We are just three days away from the Brexit deadline and there is no final agreement on the Brexit deal, or a guaranteed delay.

The pound is down for the third consecutive session against the US dollar, as uncertainties regarding the extension of the Brexit deadline and Johnson’s call for a snap election have been weighing on the bullish sentiment.

The European Union has proposed the extension of the Brexit deadline to January 31st, with the flexibility to part ways on November 30th or December 31st if both sides agree. But nothing is sure. French President Emanuel Macron, for example, insists that the UK should be given no more than a month to sort it all out, while others believe that a three-month extension would be fine. Europeans will continue discussing the matter among themselves on Monday and they are due to announce their final verdict on Tuesday.

Meanwhile, British lawmakers will decide whether to accept Boris Johnson’s early election call on December 12. Johnson will probably fall short of the two-thirds majority that he needs to throw a snap election. Opposition leader Jeremy Corbyn wants to make sure that a no-deal Brexit wouldn’t happen.

As it stands today, the probability of a no-deal Brexit is very slim. From the market perspective, a no-deal scenario is almost fully reflected in sterling prices near the 1.30 mark against the US dollar.

Pound traders have further trimmed their net short positions during the week that ended on October 22nd and have already moved on to pricing Britain’s next political challenges.

While a three-month extension may not trigger a rally in sterling, a shorter delay could accelerate a deeper correction toward the critical 1.27 level against the greenback, the major 38.2% Fibonacci retracement which should distinguish between the actual positive trend and a mid-term bearish trend reversal.

The FTSE sees demand below the 7300p level, as eyes turn to corporate earnings. HSBC missed analyst estimates. BP will post its third quarter earnings on Tuesday, Standard Chartered, GlaxoSmithKline on Wednesday, IAG, Royal Dutch Shell, BT and Lloyds on Thursday.