Financial market research and analysis

Asian stock markets extended gains for the second straight day. Better-than-expected Chinese manufacturing PMI (51.7 vs 51.3 expected & 51.4 printed earlier) helped improving the investor sentiment, except in China. Hang Seng (-0.49%) and Shanghai's Composite (-0.08%) traded lower, as telecom shares sold off aggressively on individual stock news. China Mobile tanked more than 5.66% in Hong Kong. China's big banks also fell despite posting better-than-expected quarterly earnings.

Nikkei (+0.72%) and Topix (+0.61%) rose as the USDJPY cleared the 110-offers and advanced to 110.62 in Tokyo. A break above the 110.65 (major 38.2% retracement on July – August decline) would suggest a bullish reversal of the two-month trend and encourage a stronger rise toward the 111.00/111.20 area (100-day moving average).

Industrial metals advanced to the highest levels since 2014. Copper futures extended gains above $3/lb. The negative correlation is back between the US dollar and commodity prices and may have caused the double-digit gains in the metal markets during summer. Gains could be at risk if the US dollar rebounds.

The FTSE 100 is fueled by firmer commodity prices at the open.

Energy stocks traded higher at the open. There could be renewed pressure due to plunging oil prices caused by refinery shutdowns in the US. The Hurricane Harvey continues devastating the Texas - Louisiana coast.

Gasoline prices surged to a two-year high and the premium to crude advanced to a 17-month high as the WTI extended losses to $45.58/barrel. Trend and momentum indicators remain negative as disrupted activity in the US refineries weigh on demand. According to latest news, nearly 25% of the activity in the US refineries halted due to heavy floods and the catastrophe could brush 0.2% off the quarter’s GDP.

Brent crude is also under pressure now.


US dollar surfs on surprise economic data

The US dollar is shining like a new penny on the back of unexpectedly strong economic data. The ADP employment report revealed that the US economy added 237’000 private jobs in August, beating 185’000 expected by analysts. Last month’s figure was also revised up from 178’000 to 201’000. The 2Q GDP is reviewed higher to 3.0% from 2.6%, as the personal consumption estimate was pulled up to 3.3% in the second quarter from 3.0% printed previously.
Due today, the personal income & spending data could reveal improvement in July, the PCE (personal consumption expenditure) is seen unchanged over the same month. Nonfarm payrolls data is due on Friday. The consensus is 180’000 new nonfarm jobs in August; this corresponds to the 12-month average. Any positive surprise could underpin the USD recovery, yet solid data may not suffice to reverse the dovish Fed expectations. As suspected, Wednesday’s release had a little impact on the probability of an interest rate hike in the US this year. The activity in the US sovereign markets price in 33.2% probability for a December rate hike.

The US President Donald Trump repeated his plan to lower the US corporate tax from 35% to 15% at his Wednesday speech. The unrealistic nature of his fiscal promise, especially given that the government is struggling with the debt ceiling and faces an eventual shutdown in about a month, is unlikely to be translated in the US stock prices.

Though the US stock investors seem happy to switch their focus to fading Fed hawks. A softer rate normalisation path will provide the US businesses with a longer period of low rates to flourish their activities. The market is back to a form of ‘bad news is good news’.

The US stock futures are up: the Dow Jones mini (+39 points), the S&P500 mini (+3.25 points) and the NASDAQ 100 mini (+11.75 points) edge higher.

The Dow is called 18 points firmer at $21’910 in New York open.


Gold in positive trend above $1’280

Gold saw support at $1’298 (minor 23.6% retrace on July – August advance). The downside correction could extend to $1’280 (major 38.2% retrace) if the US dollar gains further momentum before Friday’s labour data.

This said, the July – August positive trend remains intact above $1’280, given that the US yields remain comfortably low. The 50-day moving average crossed above the 100-day moving average. This gives an extra technical boost to the developing bullish trend.


Euro correction could lose pace

The EURUSD is taking advantage of a stronger US dollar. The pair cleared 1.1920/1.1900 support on Wednesday and hit 1.1867 as data showed that German retail sales contracted by 1.2% month-on-month in July, worse than -0.6% expected by analysts. A deeper downside correction is possible, yet the dip-buyers should feed in gradually approaching the 1.1800 level and temper the downside momentum in the run up to next week’s European Central Bank (ECB) meeting. Decent call options trail above 1.1825 at today’s expiry. Light stops are eyed sub-1.1800.

The Eurozone flash CPI estimate may hint at firmer headline inflation in August and give a green light to the euro buyers. French preliminary CPI improved to 0.5% month-on-month from -0.3% in line with expectations. The consensus for the EZ inflation is 1.4% year-on-year versus 1.3% printed last month. The core inflation is seen unchanged at 1.2% year-on-year.

The EURGBP bounced lower from 0.9305. The correction could deepen to 0.9172 (minor 23.6% retracement on July – August rise). The critical support to the July – August rise stands at a distant 0.9090 (major 38.2% retrace).

The DAX (+0.80%) and the CAC (+0.53%) are upbeat on softer euro. The upside could remain limited given the actual negative trend on the European stocks.


Cheaper oil weigh on Loonie, June GDP in focus

The USDCAD suffers from falling energy prices and a firmer US dollar. the June GDP data could confirm the slowdown worries.

The USDCAD cleared the 50-day moving average (1.2640). The rise could continue toward 1.2738 (minor 23.6% retracement on May – August decline). Resistance is eyed at 1.2778 (August high).


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