Financial market research and analysis

Asian trading session was quiet. The equity markets traded rangebound; Shanghai’s Composite gained timidly as twice-a-decade China’s Communist Party (CCP) congress kicked off. During his three-hour speech, President Xi said that China will let the market play decisive role in resource allocation and be innovative on foreign investments.

European equity markets traded marginally higher; energy (+0.69%) stocks lead gains in London.

The WTI crude consolidated gains above $51.22 (minor 23.6% retrace on August – October rise) after the API data showed 7.13 million barrels contraction in US stockpiles last week. More official EIA data is due today. The consensus is a 4.7-million-barrel contraction in last week’s oil inventories versus -2.7 million barrel printed a week earlier. Iraqi tensions give support on the upside and a short-term resistance is eyed at $52.90/53.00 (September high).

The US dollar consolidates strength against the G10 majors.

Gold remains offered after North Korean threat of a nuclear war failed to bring investors back to safe-haven assets. Absence of anxiety could encourage a further slide toward 100-day moving average ($1’275).


GBP: upside risks prevail

The pound unexpectedly fell as reaction to the high inflation data released on Tuesday. As expected, the inflation in the UK hit 3% in September, but the Bank of England (BoE) hawks remained timid posterior to the release. Many investors were apparently prepared for a positive surprise, as well as the BoE Governor Mark Carney who warned that the inflation should “more likely than not” accelerate in the coming months. British households could continue seeing their purchasing power decline before the economy benefits from the softer pound in terms of improved exports.

The GBPUSD shortly spiked to 1.3211 after today’s data showed that UK wages grew by 2.2% on year to August, slightly above 2.1% expected by analysts. Improved household earnings could somehow justify raising rates despite the particularly difficult Brexit setting and the BoE is left with no alternative. This being said, the BoE rate hike will certainly be a one-off intervention and shouldn’t imply a path for gradually higher rates at this point.

Market assesses 80% probability for a November rate hike and the pound should find buyers at dips. Intra-day support is eyed at 1.3154 (post-CPI low) before 100-day moving average (1.3091).


Euro longs trapped in sliding yields

The EURUSD trades slightly above its 100-day moving average (1.1730). Catalan uncertainties are a major bearish driver and the long euro positions are becoming trapped in lower euro yields. Trend and momentum indicators are marginally negative. From a technical perspective, the death cross formation on the hourly chart (50-hour moving average crossing below 200-hour moving average) hints at the possibility of a further slide. Short-term support could be found at 1.1730 (100-day moving average) and 1.1669 (October low). The key support to April – September positive trend stands at a distant 1.1509 (major 38.2% retracement).


Dow renews record as US earnings kick in

The US equity futures edged higher in Asia and in Europe, after the Dow Jones traded above the 23000 level for the first time on Tuesday.

Goldman Sachs dropped more than 2% after 3Q earnings announcement. Although Goldman’s earnings topped analyst estimates, the warning that investment banking transactions could decline triggered a sell-off. Morgan Stanley gained as its 3Q FICC (Fixed Income, Currencies and Commodities) earnings per share beat estimates (93 cents versus 82 cents expected).

American Express, Abbott, Labs, Alcoa, Steel Dynamics and Kinder Morgan will release results today.


Option markets supportive of USDJPY

The USDJPY consolidated above the 112.00 level, as the US dollar remained in demand on hawkish Federal Reserve (Fed) expectations despite concerns on soft inflation. Decent call options trail from 111.40 to 114.75 at today’s expiry and should provide a support to the greenback against the yen.

Political risks prevail in Japan before the October 22 snap election and could prevent many investors from exchanging their yen against foreign currencies before the election weekend. Large put options stand at a distant 110.00 as traders remain alert to a sudden yen appreciation before and after the election.


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