Currencies
EUR/USD – weak data out of the Eurozone and better than expected data out of the US drove the EUR lower once again, although it managed to come off its lows as the day. Nevertheless, it is trading near the lowest level in a week, as also the uncertainty regarding Spain and Catalonia remains and also the Brexit negotiations are not making any significant progress and appear to be deadlocked. Today ECB President Draghi will speak as well as other ECB members and we will be looking if they make any comments on tapering of QE. Today several FOMC members will also speak and from them we will be looking at comments with regards to inflation and a possible rate hike.
USD/JPY – rose further as the USD continued to strengthen. We reached the resistance around the 112.5 level, but as long as the USD continues to strengthen and the demand for safe havens remains low, as the situation with North Korea is not deterioration further, we can expect a break of this level, especially if the data out of the US remains solid. On Sunday, we also have the election in Japan, which was called a few weeks ago by Prime Minister Abe.
GBP/USD – dropped even though inflation was as expected at 3%, but it was still the highest level in 5 years, which reinforced the expectation that the BOE will raise the interest rate at its next meeting next month. while this is likely to slow down inflation, it is expected that it will do the same for economic growth, so the BOE is in a bit of a catch-22. However, not all BOE officials are in favor of such a move as was made clear yesterday, which resulted in an immediate weakening of the GBP. In addition, concerns regarding the stalling Brexit talks remain as the chances of a hard Brexit are increasing, even though none of the parties prefer this option.
Bitcoin – dropped yesterday around $200, although that is not considered a major drop anymore. When looking at the weekly chart we can clearly identify a trend of a sharp upwards move, a correction that last around 2-3 weeks and then a renewed upwards move to new highs. The question obviously is if we are now in the period that Bitcoin corrects a bit before surging again or that this is just a temporary blip.
Indices
Dollar Index – continued to move up and has nearly recovered the losses from last week as the data out of the US remains solid and on track for another rate hike in December. The expectation that FED Chair Yellen will be replaced by a more hawkish FED Chair is also strengthening the USD. It is anticipated that President Trump will make his decision known before his Asia trip which is at the start of November.
S&P 500 – reached a new record high, not the first this year, and was led by the healthcare sector as earnings continued to dominate the markets. We are seeing less of a surge than we have seen in the past and are seeing only minor gains as a lot of people are getting worried that the market is ripe for a correction due to having reached high valuations.
VIX – as could be expected the VIX jumped up as fear crept into the markets after the terror attack in Spain and the lingering troubles in Washington. The VIX nearly reached the level that was reached last week when the tensions between the US and North Korea were at its high.
Commodities
Copper – continues to trade near its 3-year high even though it lost some ground yesterday. Demand for copper is expected to remain high due to the growing global economy, and due to the expected rebuilding efforts in the US and the Caribbean due to the damage of the recent hurricanes. Also, important will be the data out of China tomorrow, which includes GDP and industrial production.
Gold – remains under pressure from the rising USD and the lack of geopolitical tensions which would result in an increase in demand for the safe haven. The USD rises as the data out of the US remains strong and the expectation is for a new hawkish FED Chair. On the geopolitical front, there have been no negative developments with either North Korea or Iran, so the tensions are fading away, although especially the situation with North Korea requires careful monitoring.
Oil – the tensions in Iraq between the Iraqi government and the Kurdish leadership appear to have eased, as the Iraqi government took control of Kirkuk and the surrounding oil fields without a fight and the disruption in production were limited. Nevertheless, the Kurds are unhappy about this and the situation could change, especially after the recent Kurdish referendum. The API data showed a much larger draw than expected of over 7 million barrels. We will be looking this afternoon at the EIA inventories as well as the production data out of the US. It appears more and more likely that OPEC will be extending its production cut freeze.
Stocks
Goldman Sachs (NYSE:GS) – dropped 2.5% after its earnings even though revenue was better than expected at $8.3 billion while $7.5 billion was expected. however, profits were down compared to last year and there was also a decline in profits from commodity trading, which already under-performed last quarter and was cited the worst in its history.
Johnson & Johnson (NYSE:JNJ) – rose 3.5% on strong earnings to reach a record high with a revenue that was better than expected at $19.7 billion. What was also important is that the company has raised its forecast for the year based on the good results so far.
Morgan Stanley (NYSE:MS) – reported a revenue $9.2 billion versus expected revenue of $9.04 billion and a profit of $1.78 billion. Nevertheless, it was able to only close a bit higher likely as a decline in trading revenue prevented it to close as strong as it opened.
Verizon – will be reporting its earnings tomorrow before the market opens.