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US dollar retreats, US retail sales, PPI and Q3 earnings in focus

s the Q3 earnings season kicks off, the attention partially shifts away from the macro to micro data.

JPMorgan disappointed last night with a lower-than-expected EPS of $1.29 versus $1.375 expected. The 10% drop in corporate and investment banking revenues, lower banking activity on commercial and consumer fronts, difficult trading environment due to high volatility in the market, rout in commodity prices and exceptionally high FX volatility, combined to $1.3 billion worth of litigation bill outshone the Q3 results. As its cost cutting program failed to enhance revenues, JPMorgan could be tempted to announce additional measures. The bank already cut 10000 jobs so far this year. While job cutting is an efficient and immediate way to reduce expenses, the bank can hardly infinitely reduce staff. In the long-run, only the right strategical and structural decisions will bring in business.

According to a recent note from JPMorgan, the S&P500 financials’ EPS could have improved by an average 10% in the third quarter. However, regarding at JPMorgan’s 6.22% miss on its own EPS, we suspect that the Q3 results may well fall short of this optimism across the sector. Stricter set of regulatory measures, fines, the substantial restructuring in activities, added to high currency risk and challenging trading environment hint at potential let-down vis-à-vis the financials earnings in Q3, 2015. Bank of America will release results today; Goldman Sachs and Citigroup are on the watch list tomorrow.

On the macro front, the US retail sales are expected to have expanded by a timid 0.2% in month of September. In cyclical terms, this is a poor expectation for an average month of September.

The headline producer prices in the US may have stepped in the negative territory in September. The low commodity and energy prices creep in the US macroeconomic data. And the unsolicited spin in the macroeconomic picture hints at a delay in Fed normalisation. Hence the fading expectations on a December Fed rate hike weigh on the US dollar. The market gives no more than 35% for a December move. The consensus for the first step has now shifted to March 2016.

The US dollar index has given away more than 50% of January-March gains.

No good news came out of China overnight.

Chinese inflation slowed to 1.6%y/y from 2.0%y/y in September, more than market forecast of 1.8y/y. The producer prices contracted 5.9%y/y as anticipated. Thanks to PBoC’s announcement to enhance liquidity through bank lending on Monday, the sell-off in Chinese stocks remained contained. The commodities are again under pressure.