FTSE +19 points at 7554 DAX +23 points at 13015 CAC +14 points at 5365 IBEX +2 points at 10260
The US dollar kicked off the week higher in Asia despite the slight disappointment in Friday’s inflation figures. The US consumer price inflation, excluding fresh food and energy eased to 0.1% month-on-month in September from 0.2% printed a month earlier. Soft inflation read accentuated some Federal Reserve (Fed) members’ concerns about the slowing inflation. At her Sunday speech, the Fed Chair Janet Yellen responded that her “best guess” is consumer prices will soon accelerate after a period of surprising softness, keeping the Fed hawks in charge of the market on Monday open. ‘A forecast echoed by European Central Bank President Mario Draghi and Bank of England Governor Mark Carney’ reported Bloomberg.
Asian equities started the week on a positive note. Hang Seng index (+0.92%) gained along with Nikkei (+0.51%), Topix (+0.65%) and ASX 200 (+0.56%) while Shanghai's Composite (-0.29%) failed to consolidate morning gains. As expected, Chinese consumer price inflation retreated to 1.6% year-on-year in September from 1.8% printed a month earlier; producer price inflation surged from 6.3% to 6.9% over the same period, beating the consensus of 6.4%. Copper (+0.66%) and steel rebar (+1.64%) futures edged higher in Shanghai.
The US equity futures gained along with the Asian equity markets. The US equity markets will likely be driven by earnings from major companies and banks this week. Morgan Stanley (NYSE:MS), Goldman Sachs (NYSE:GS), Blackstone (NYSE:BX), Chinese ICBC, Philip Morris (NYSE:PM), Unilever (NYSE:UN) , Netflix (NASDAQ:NFLX) and General Electric (NYSE:GE) will post results throughout the week.
The USDJPY rebounded from 111.71 in Tokyo. Firmer US dollar helped. The yen sentiment is mixed before the October 22 snap election in Japan. Limited risk appetite could prevent investors from moving away from the risk-haven yen, although the event risk threatens the Japanese markets directly.
Gold traded above $1300 after gaining momentum on last week’s USD depreciation and easing US yields. Meanwhile, the US - South Korean navies' joint military exercise can escalate the North Korean tensions and underpin the recovery in gold. From a technical point of view, the precious metal stepped into the short-term bullish consolidation zone after surpassing the $1300 (major 38.2% retrace on September-October decline). Key support to the actual recovery is eyed at $1’288 (major 38.2% on October 5 – 16 rebound).
The antipodeans lagged the most against the US dollar in Asia. The AUDUSD retreated to 0.7868 in Sydney and could be tempted to test the 100-day moving average (0.7860) in the continuation of the negative intra-day trend. Rising iron ore futures (+2.40%) could limit the downside.
Political risks are on euro traders’ agenda this week. Catalan President Puigdemont should clarify his position on independence today, as German Chancellor Angela Merkel heads into coalition talks this week to form a national government after the disheartening general election outcome. So far, Mr. Puigdemont sent a vague answer to Madrid, repeating that the Catalan independence will be declared but the declaration of independence has been momentarily suspended. There is an increasing risk of Madrid taking control of the situation due to uncertainties.
The EURUSD failed to break above the 1.1880-resistance (Fibonacci 50% retracement on September – October decline) last week. The downside correction could deepen toward the 100-day moving average (1.1717). Light call options are due at 1.18-strike at today’s expiry, hinting at an eventual support against the US dollar at this level. Traders are hedged for a slide below 1.1760, put options below this level could weigh on the single currency in case of a slide toward this zone. Against the pound, large EURGBP put options will expire at 0.8886 / 0.8900 today.
The European stock markets will be handed a positive market, yet traders should remain vigilant on event risk due to Catalan crisis
The FTSE 100 could make a renewed attempt toward all-time highs on the back of firmer oil and commodity prices. However, the strong pound could limit the topside appetite nearing 7565p (October 12 high).
WTI crude traded above $52 per barrel on the back of tensions in Iraq.
The pound was the best performer against the US dollar in Asia. Pound traders’ focus is on Tuesday's inflation report. Analysts expect that the British consumer price inflation may have hit 3% year-on-year in September. A solid inflation should revive expectations that the Bank of England (BoE) could raise rates as soon as next month's MPC meeting and boost the GBP-long positions. The probability of a November rate hike stands at 75% and the probability of a December rate hike is given 80%. Hence, the upside risks prevail in pound markets before Tuesday’s inflation data. The key resistance against the US dollar is eyed at 1.3342 (50% retrace on September – October decline). Support could be found at 1.3262 (50-hour moving average), 1.3230 (100-hour moving average), 1.3195/1.3190 (2000-hour moving average / 50-day moving average).