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Soft PMI could send FTSE below 7400p, despite cheap pound. Euro risks tilted to the downside.

Global equities are better bid after the US officially rejected the latest news about leaving the Chinese stocks out of the American exchanges.

Japanese equities followed up on a positive New York session. Tankan manufacturing index declined from 7 to 5 in the third quarter, significantly less than 1 expected by analysts, as the manufacturing outlook deteriorated slower than feared. But capital expenditure across all industries fell from 7.4% to 6.6%, versus 7% penciled in by analysts. Soft, but not catastrophic data, spurred expectations that the Bank of Japan (BoJ) would announce additional stimulus by the end of this month. The yen cheapened to 108.23 against the US dollar, giving a better spin to the Japanese exporters. Carmakers mostly gained.

China and Hong Kong markets are closed due to the Chinese Communist Party’s 70th anniversary celebrations, but investors keep an eye on Hong Kong, where festivities could turn into a tragedy with worsening anti-China bellyache. The worse scenarios are already factored in the market prices, hence, leaving the most-feared October 1st behind should give a short-term relief to investors when the trading resumes. Yet, the long-term structural risks in Hong Kong, such as the threat of losing its special status, will likely remain the major barrier to a broader-term recovery.

Gold crushed to $1462 an ounce on the back of a rapid unwind of speculative long positions.


USD extends gains, euro and pound crush under the pressure of weak data, muddy politics

The US dollar extended gains against all G10 currencies. The US dollar index advanced to the highest level since May 2017 and is expected to make an attempt above the 100-handle shortly, as its major counterparts collapse on weakening economic fundamentals, political shenanigans and increasingly dovish central bank expectations.

The euro-dollar endured a sharp fall on stops as it slipped below the 1.09 mark, after inflation in Germany eased from 1.4% to 1.2% y-o-y in September versus 1.3% expected by analysts. Due today, the final PMI read should confirm the shocking contraction (41.4) in German manufacturing activity in September. But no significant price action is expected after the release today, given that the weak data is already factored in the market prices.

The DAX closed 0.38% up on Monday and is set for a positive start on Tuesday.

European investors will rather concentrate on September inflation estimates. The Eurozone core inflation estimate may hint at a slight improvement from 0.9% to 1.0% in September. If not, the euro should be tempted to extend losses below the 1.09 mark. An advance past the 1.09 level should meet a decent resistance near 1.0938 (minor 23.6% Fibonacci retracement on September 13-30 debasement) and 1.0970 (major 38.2% retrace).

Across the Channel, the pound continues feeling the pinch of messy politics and chaotic Brexit debates within Parliament. The economic growth contracted by 0.2% in the second quarter, the biggest retreat since the last quarter of 2012, as businesses disinvested 1.4% mostly due to the Brexit unknowns. The current account deficit didn’t narrow below 20 billion pound as expected, either. Plus, the last release was revised up to 33 billion from 30 billion pounds. Apparently, a softer pound didn’t have a full magic effect on Britain’s deficit due to… the Brexit uncertainties.

As a result, cheaper pound didn’t translate into an improved appetite in Britain’s blue chips on Monday, as investors lost their enthusiasm following the discouraging GDP and current account prints.

Still, the FTSE 100 held ground above the 7400p handle and is expected to open 20 points stronger at 7428p on Tuesday. Though, gains could be vulnerable to the release of additional bad data today.

A weak PMI read this morning could point at a faster contraction in the manufacturing activity in September, further spoil the investor mood and send the FTSE below the 7400p support despite the cheapening pound.

Speaking of Brexit, the UK government has finalized the legal text of a proposed Brexit, which will be presented to the EU on Thursday. The Irish border remains the most intricate part of the puzzle, as the UK wants to gradually exit the Irish backstop according a person familiar with the matter, but Europeans don’t.

In the meantime, the oppositions party members are trying to agree on an alternative government plan and to oust Boris Johnson. The leading risk here is, if they fail to agree among themselves, Johnson could throw the snap election he wants before the Brexit deadline and somehow manage to get the country out of the EU by October 31st, probably without a deal. With the risks comfortably tilted to the downside, a further fall in pound is almost inevitable. Presently, Cable tests 1.2272, the 50% Fibonacci retracement on September rebound. A move below this level should encourage a further slump toward 1.2198 (major 61.8% retracement) and bring the 1.20 level back to the table.



17-1-2020

S&P 500 tops 3,300 as Alphabet reaches $1 trillion
EQUITIES European shares look set to open higher on Friday bolstered by stats showing stable economic growth in China and another record-breaking session on Wall Street that saw the S&P500 top 3,300 for the first time. Mining companies are likely to featur… Read more

16-1-2020

Europe to open higher & Sterling recovers
Shares in Europe and on Wall Street are set for a higher open on Thursday after a positive session in Asia.   Wall Street notched up new records and finished the day higher after the signing of the phase one US China trade deal. That the S&P 500 and Nasdaq… Read more

15-1-2020

Stocks, oil lower as Tariffs stay in place, Persimmon, Goldman Sachs, Saunders, UK CPI
European shares are lower on Wednesday after a down session in Asia while LCG pricing points to a lower start on Wall Street. US Treasury Secretary Steve Mnuchin confirmed that tariffs against China will remain until November, after the US election. The tariff… Read more

14-1-2020

Currency manipulator, China exports, Yuan 5-month high, US bank earnings
European shares are flat on Monday after a mixed session in Asia while LCG pricing points to a lower start on Wall Street. INDICES: US removes China currency manipulator status Wall Street has yet again reached new record highs in the lead-up to the signing… Read more

13-1-2020

Waiting for signing, Taiwan, William Hill, Ford, UK industrial production
European shares are trading mostly higher on Monday after a rally in Asia while LCG pricing points to a higher start on Wall Street. INDICES: Taiwan, Trade deal signing The landslide re-election of President Tsai Ing-wen and its implications for Taiwan’s relat… Read more

10-1-2020

STOXX 600, Ukraine Boeing 737, growth hopes, Apple, Carney, US payrolls report
INDICES: STOXX 600 fresh record, Dow 29k? European shares have opened mixed on Friday after a strong session in Asia, while LCG pricing points to Wall Street opening higher. Stock markets are sitting at record highs because visions of better global growth and… Read more

7-1-2020

Dip-buying, Uber, Hyundai, Tesla, Eurozone CPI
INDICES: Iran tensions fall After a rise in Asian shares, European shares have opened on a firmer footing while LCG pricing points to a flat open on Wall Street. Energy and miners are the biggest sector laggards while the rest of the market edges mostly higher… Read more

6-1-2020

Iran, gold, oil, USDJPY, Aldi & supermarket Christmas sales
INDICES: Investors wait for Iran retaliation Stocks in Europe have opened lower on Monday. Today’s opening losses extend the stock market weakness that began on Friday when a US airstrike killed Iran’s top Military Commander Qassem Soleimani. The prospect of… Read more