In the American market, high-tech NASDAQ lost over 2% on Thursday, S&P 500 fell by 1.4%, and bond yields continued to rise amid the Fed's willingness to tighten its policy. The prospects of higher interest rates suppress the growth of shares, where there is a decline in expectations for further profit growth.
The most recent market leaders feel the worst in these conditions – IT sector shares, where we see maintaining the bias for taking profit. At the same time, it should be noted that despite the growth of volatility, it is still very early to talk about the risks of a deep decline. Both key American indices find support near their 200-day averages. This is a piece of evidence that the principled belief in growth persists despite the heightened caution.
Chinese stocks are trying to grope for support after the failure to the new 17-month lows in the index of the largest companies in China. Weak data on the country's economy contributed to the renewal of lows. Official statistics noted the slowdown of growth in the third quarter to 6.5% yoy, which is the lowest level since 2009, when the economy was suppressed by the global financial crisis. Industrial production added a negative, demonstrating the increase by 5.8% yoy according to results of September, the minimum since February 2016. This is a sign of difficulties in the economy in light of the U.S. tariffs.
However, in our opinion, now the markets underestimate the positive factors like the growth of fixed assets investments, which can become a signal of reversal for the six-year trend on the decline of this ratio. Retail sales also exceeded expectations, adding 9.2% yoy, and here the cautious reversal to growth has been observed since May. Domestic demand already looks like a good engine of the economic growth instead of export difficulties.
The dollar is expected to benefit from rising interest rates in the US and increased investors’ caution. USDX rose by 1% to the highs of this month in the previous two days and has frozen near 95.70 at the start of trading on Friday. The EUR/USD pair fell into the 1.1450 area, as Italy's budgetary problems and increased volatility of markets provoke a withdrawal from the region's risk assets. The British pound has returned to 1.30, losing 1.7% this week, after diminishing hopes for soon compromise on Brexit issues. There are more and more signs that the exit process can be extended for even a longer period of time.
Alexander Kuptsikevich, the FxPro analyst