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Optimism Returns. Markets Rebound on Upbeat US Earnings

Upbeat earnings on Wall Street restored investor faith, driving a rebound in US equities. Impressive corporate earnings from the likes of Goldman Sachs, Morgan Stanley and Johnson & Johnson, plus relative calm in the bond market saw the Dow soar 500 points in its best session since March.

Netflix smashes expectations

Netflix reported after the close overnight sending shares in out of hours trading up a staggering 16%. Netflix smashed estimates for both subscriber growth and earnings in the third quarter thanks to strong global growth, sending its shares flying. Netflix added almost 7 million subscribers, compared to the 5 million that Wall Street was expecting. This takes global subscribers to 137 million. After a miss in subscriber numbers in Q2, there was a strong underlying fear that we could see another shortfall. These figures from Netflix have calmed investor fears and will go a long way in helping Netflix return to its position of the darling of Wall Street. More generally, there has been a lot of concern going into earnings season for the US tech stocks and Netflix have done a great job at easing these worries. Now investors look towards earnings for the rest of the tech sector.

Traders alert for busy session

Asian shares have received a leg up from the gains on Wall Street and European bourses are pointing to a strong start on the open. Wednesday promises to be a busy session with inflation data from the UK and Eurozone, the start of the EU leaders’ summit, the ECB potentially throwing more criticism at the Italian budget, more corporate reports from the US and the release of the Fed minutes. Traders will have to remain alert in a session full of market moving events.

Inflation & Brexit nerves to send pound to $1.31?

Today has the potential to be another volatile session for the pound, this time with the risks stacked to the downside. CPI figures are expected to show that inflation ticked lower in September to 2.6%, down from 2.7% the prior month. Core inflation is also expected to have dropped to 2%. Add to that the EU leaders’ summit with no Brexit breakthrough. Finally, throw in hawkish Fed minutes expected later today and the picture for sterling is looking ropey at best. The pound could comfortably be shooting through $1.3100.

Despite the increasingly desperate tone of Brexit negotiations, the pound has put in a solid performance over the past few months. This is eye-catching, to say the least. Yet whilst the two options, a disorderly hard Brexit or an orderly smooth Brexit remain on the table, market participants are finding it impossible to know which way it’s going to go. As a result, traders are sitting on the fence, with bits of economic data suddenly driving the pair instead. As we saw yesterday the pound was lifted by strong wages data.  A surprise to the downside in today’s inflation report could easily work against sterling.

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