FTSE -16 points at 7489 DAX -5 points at 13212 CAC -5 points at 5489 IBEX 35 +126 points at 10323
The strong US dollar and solid US earnings were among the major trading themes last week. The US dollar index (DXY) advanced to highest levels since mid-July and the US 10-year yield tested 2.48% as the US 3Q GDP surprised on the upside by a solid 3% print (year-on0year annualized) on Friday, compared to 2.6% expected by analysts.
The US has a busy corporate, political and economic agenda this week as well.
The Republicans will release the much-expected tax plan and may or may not satisfy investors which have been driving the US stock markets higher since Trump’s election nearly a year ago. We remind that the S&P 500 gained 23.86% since November 2016, the Dow Jones rallied by 32.40% and NASDAQ soared by 34.79% and hit a historical high (6’223.515) on Friday.
Solid corporate results fueled the US’ stock rally during last week and the US companies will continue releasing earnings this week. Big names, as Mastercard (Tuesday), GoPro, Tesla (NASDAQ:TSLA), Facebook (NASDAQ:FB), Kraft Heinz (Wednesday), Ralph Lauren (NYSE:RL), Starbucks (NASDAQ:SBUX) and Apple (NASDAQ:AAPL) (Thursday) results will be closely monitored. Apple suppliers are well bid after being asked to double their capacity as Apple X pre-orders were ‘off the charts’ on their first day.
More earnings: HSBC, BT, BNP Paribas (PA:BNPP), Credit Suisse (SIX:CSGN), BP (LON:BP), Royal Dutch Shell (LON:RDSa), Ryanair and Ferrari (NYSE:RACE) earnings will also be in focus this week.
The FOMC will meet on Wednesday and is expected to keep the interest rates unchanged at this week’s meeting. The probability of a December rate hike stands at 85%. President Donald Trump will likely announce the new Chair of the Federal Reserve (Fed) before Friday; Jerome Powell is the front-runner.
Finally, the US unemployment and non-farm payrolls (NFP) will be released on Friday. The consensus for October NFP is 310K, versus -33K printed a month earlier.
Strong risk appetite and improved US yields continue pressuring the precious metals on the downside. Gold remains offered below its 100-day moving average ($1’275). Next support is eyed at $1’260 (200-day moving average). Silver is struggling near its 100-day moving average ($16.80) as well. Light support could be found at $16.32 (October low).
The USD/JPY held ground above 113.50 in Tokyo. Japanese retail sales improved by 0.8% on month to September (vs -1.6% a month earlier), yearly sales grew by 2.2%, slightly slower than 2.3% expected by analysts. The Bank of Japan will meet on Tuesday and is expected to maintain its dovish stance, especially after PM Shinzo Abe’s victory at last week’s snap election. Large call options stand at 113.80 and 115 at today’s expiry. The market is widely hedged for a further rise past the 115.00 level. It is certainly just a matter of time before the USDJPY takes over the 115 mark.
The EUR/USD extended losses to 1.1576 on Friday. The key support to the April – September rise stands at 1.1509 (major 38.2% retracement), which should distinguish between a consolidation within 1.15/1.18 area and a mid-term bearish reversal. The European Central Bank (ECB) convinced investors that the Eurozone’s monetary policy will remain soft despite reduced monthly bond purchases from 60 to 30 billion euros from January. The Quantitative Easing (QE) program will continue running at half speed until September 2018, but will not end abruptly. The EUR/GBP fell to 0.8825 and could extend losses toward the 200-day moving average (0.8792) if the GBP-bulls return to the market before Thursday’s Bank of England (BoE) meeting. The Catalan worries seem to be fading after hundreds of thousands pro-unity citizens marched in Barcelona over the weekend. The Catalan separatists reject Spain taking control over the region. Still, the IBEX is expected to open upbeat on the back of the unity hope.
The BoE is expected to raise the interest rates by 25 basis points to 0.50% to ease the inflationary pressures in the UK. A no-action would be an unpleasant surprise for the market, after the UK’s headline inflation hit 3% level in September. It is important to keep in mind that a 25bp hike is extensively priced in, therefore the BoE’s tone will matter the most. A dovish hike (one-off action) could send Cable below the 1.30 support, even if the BoE raises rates on Thursday. Offers should come into play pre-50-day moving average (1.3255).
The FTSE rolling index couldn’t consolidate past the 7500p level during the overnight session. The pound recovery could dent the overall appetite, but individual stock news could cause divergences between sectors and stocks.
UK’s energy stocks rallied 1.17% on Friday as the Brent traded above $60/barrel for the first time since July 2015. The WTI crude finally broke the $52.90-resistance. Stronger positive trend suggests an extension to $55.00 and $55.67 (Jan high). Support could be found at $52.90 and $52.50/52.20 (area including 100 and 200-hour moving averages).
BP will release 3Q results tomorrow and the adjusted earnings per share is expected to have jumped to 0.0802 from 0.0347 printed last quarter. Royal Dutch Shell earnings are due on November 2. Expectations are also positive.