FTSE 100 -7 points at 7480 DAX +8 points at 13237 CAC -2 points at 5491 IBEX 35 -20 points at 10426
Stocks traded mixed in Asia. The softer-than-expected Chinese manufacturing and non-manufacturing PMI weighed on the sentiment, along with the Trump investigations. Australian stocks (-0.17%) were dragged lower by mining stocks (-0.61%) and financials (-0.58%). Nikkei (+0.01%) and TOPIX (-0.20%) lacked appetite due a stronger yen. Hang Seng (-0.11%) and Shanghai’s Composite (+0.03%) were flat. Korea’s KOSPI outperformed its Asian peers and traded at an all-time high (2’528.32), as Samsung (KS:005930) gained more than 2.30%.
The US dollar came off the three-month highs on increased political risks caused by investigations on Trump-Russia ties. The two-day Federal Reserve (Fed) meeting starts today. The Fed is expected to stay pat at this week’s meeting and keep the possibility of a December rate hike on the table. Solid 3Q earnings season and better-than-expected GDP are building a strong basis for an additional 25 basis points hike before the end of the year, and a December action is priced in with more than 80% probability in the US sovereign bond markets.
A more important Fed news will likely be the announcement of the new Chair Fed this week. Jerome Powell, who is known to be a dovish Fed member is the front-runner, as he is in favour of low interest rates, hence well in line with President Trump’s low rate inclination. His appointment could temporarily weigh on the US dollar. But it is important to keep in mind that Janet Yellen is also a dove, therefore Powell’s appointment will certainly not change the Fed’s current strategy drastically. The Fed, as all central banks, has an inflation mandate and can simply not concentrate only on growth and disregard inflation. Therefore, the Fed policy under the new Chair’s rule will certainly be the continuation of Janet Yellen’s policy. In the same way, Janet Yellen’s reign has been the continuation of Ben Bernanke’s.
Facebook (NASDAQ:FB) and Apple (NASDAQ:AAPL) traded at historical high levels before 3Q earnings due on November 1 and 2 respectively.
The Bank of Japan (BoJ) maintained the status quo at today’s meeting and lowered its inflation forecasts as a confirmation that Japan’s loose policy is here to stay after PM Shinzo Abe’s victory in this month’s snap election. Already priced in, the dovish BoJ statement couldn't give a boost to the JPY-bears. The USD/JPY is losing its positive momentum. The pair broke below its 200-hour moving average (113.53) and traded below the hourly Ichimoku cloud as the US yields pulled back support on Monday. Buyers could be tempted to step in near the lower Bollinger band (112.86) on hourly basis. More support is eyed at 112.75 (minor 23.6% retrace on September – October rise). The two-month positive trend could take a stronger hit below this level. Put options are eyed at 112.75 and 112.00 at today’s expiry. Key support to the positive trend is eyed at 111.71 (major 38.2% retracement).
The EUR/USD consolidates losses before the Eurozone inflation and GDP data. The latest PMI figures across the Eurozone countries hint at strong industrial and services output, which could be an upside risk to the downside revision in GDP growth from 0.6% to 0.5% in the third quarter. The core and headline inflation are seen steady at 1.1% and 1.5% respectively in October preliminary data. Offers are presumed at 1.1695 (minor 23.6% retrace on September – October pullback) and 1.1767/1.1771 (100-day moving average / major 38.2% retrace). The key support to the April – September rise stands at 1.1509 (major 38.2% retracement).
European stocks treaded water on Monday, apart from the Spanish stocks. The DAX (+0.09%) and the CAC 40 (-0.01%) closed flat, the IBEX rallied 2.44% as Spanish government took control over Catalonia and faced no strike from Catalan workers as some feared. The Catalan independence crisis could end in tears for the Catalan separatists and leave its place to a further recovery in the Spanish stock and bond markets. The 10-year Spanish yield is down to 1.50% from 1.78% (November 4 peak). European markets are set for a flat open.
The pound is pushing higher against the USD and the euro before Thursday’s Bank of England (BoE) meeting and Quarterly Inflation Report (QIR). Cable remains bid above its 100-day moving average (1.3120), the EUR/GBP tested the 200-day moving average (0.8792) on the downside. Yet the downside risks should not be ruled out. A 25-basis-point rate hike is priced in with 85.9% probability and may not further motivate the GBP-bulls without a solid accompanying statement. Investors need to hear more commitment from the BoE to keep the GBPUSD above the 1.30 and the EURGBP below the 0.90 mark. The BoE should at least leave the door open for more action for the sake of a stronger pound, which in turn could have a cooling effect on inflation.
The FTSE 100 (-0.23%) was split on Monday. Consumer staples (-1.25%), financials (-0.96%) and utilities -0.63%) were offered, energy (+0.74%) and technology stocks (+0.58%) outperformed. Gold miners (Fresnillo (LON:FRES) +2.69%, Randgold Resources (LON:RRS) +1.62%) gained as gold steadied near its 100-day moving average ($1’275). Firm pound could keep the topside limited by 7505p (200-hour moving average).
Brent crude consolidated above the $60/barrel level as WTI crude extended gains to $54.50. The sentiment is positive before the OPEC’s World Oil Outlook due on November 7 and the ordinary OPEC meeting due on November 30. The next resistance is eyed at $55.00/55.67 (January high). The WTI’s price increased by 5% since the formation of golden cross (50-day moving average above 200-day moving average) in September.