European traders took over a strong market from Asia. Japan’s Nikkei 225 traded at the highest level since 1996, as Korea’s Kospi closed at a record high.
The IBEX 35 (+1.15%) opened upbeat after Catalans took a step back from their unilateral independence rhetoric and seem open to discussion with Madrid. Catalonian President Puigdemont said that the October 1 referendum gave the Catalan government a mandate to pursue independence, but not immediately. Spanish PM Mariano Rajoy will speak on the issue today and will unlikely sound compliant with the Catalan independence plans. From a Spanish perspective, it is a fact that the Catalan government crossed the line by running a referendum that Spain qualified as illegal. Rajoy’s tone will matter. A strong opposition could escalate the crisis.
There is a light economic data flow in Europe except the Spanish inflation, which came in line with analyst expectations and saw a perfectly muted market reaction. The euro’s relief recovery may be halted by PM Rajoy's speech on Catalan crisis. The first resistance against the US dollar is eyed at the 50-day moving average (1.1858).
In London, the FTSE 100 opened flat. Mining stocks (-0.85%) lead losses at the open, energy stocks (+0.10%) traded marginally higher on firmer oil prices.
The WTI crude took over the $50/barrel handle on speculations that low oil prices could eventually bring the OPEC and its allies to take additional measures to help rebalancing the market. In the US, the weekly API data is due today and the more official EIA data is due tomorrow (with one-day delay) because of Monday US holiday. The US crude inventories may have fallen by 2.4 million barrels last week, according to the latest Bloomberg survey. Lower stockpiles could give an extra boost to the market. Resistance is eyed at $52.90, September high.
The pound recovered following stronger-than-expected industrial and manufacturing data on Tuesday. The GBP/USD tested the 200-hour moving average (1.3226) on the upside. The Bank of England (BoE) hawks lie in wait to underpin the pound recovery as talks of a sooner-than-anticipated BoE rate hike loom. 'Fastest inflation in four years leaves the U.K. central bank preparing to hike next month for the first time in more than a decade', reported Bloomberg. The probability of a November rate hike stands at 78.1%, up from slightly above 10% at the beginning of September. The political uncertainties remain a major downside risk for pound traders. PM Theresa May talked down the possibility of another Brexit referendum, although her deputy Damian Green voiced his preference to remain part of the union. Tensions are high among the Tories, especially in the aftermath of a difficult start to the negotiations with the EU.
The EUR/GBP is rangebound around its 100-day moving average (0.8950).
Investors seeking rate hike hints in Fed minutes
The US dollar lacks a clear direction against the G10 majors, after President Donald Trump's quarrel with the senator Bob Corker raised doubts on the feasibility of the tax reforms again. Divisions within the Republicans seems to be a similar story to the healthcare bill and controversies could result in more disappointment for the Trump’s administration.
The Federal Reserve (Fed) minutes are due today. The Fed hawks came back in charge of the market after the FOMC hinted at its additional rate hike intentions this year at the latest meeting. Investors will be looking for more rate hike hints. The probability of a December rate hike stands close to 80%. Minutes could be overshadowed by uncertainties on the next Fed Chair.
The US equities gained on Tuesday. Walmart (NYSE:WMT) rallied by 4.47% after announcing $20 billion share buyback program and an optimistic earnings guidance. Asian traders showed little appetite for the US equity futures before the Fed minutes, the European traders remained uninterested at the open.
Gold consolidates gains, but the safe-haven allocations are losing momentum. The next resistance is eyed at 1'295/1'300 area (50-day moving average / major 38.2% retrace on July - September rise). A rebound in USD could reverse the three-day positive trend and encourage a retreat toward the 100-day moving average ($1’273).
Turkey’s current account deficit narrows significantly
The Turkish account deficit fell from $5.12 billion to $1.24bn in August. A lower trade deficit ($ -5.87 billion in August down from $ -8.87 billion a month earlier) explained a part of the improvement. Net errors and omissions made up to $1.61 billion.
The USD/TRY traded below 3.70 on strong current account data. Short-term support is eyed at 3.6572 (100-day moving average).
From a political perspective, the US-Turkey diplomatic tensions remain a major caveat for a sustained lira recovery. A move below 3.6570 support could encourage a further slide to 3.6345 (minor 23.6% retracement on September – October rise, after October 9 peak has been filtered). The key support to the actual positive trend stands at 3.5865 (major 38.2% retracement).