Equity markets just keep heading higher. It really doesn’t matter what the headwinds are. With recent catastrophic events such as the massacre in Las Vegas, North Korean Tensions and Catalonian referendum tensions, it appears that even if the planet managed to invert itself, it still wouldn’t make any difference to the market.Stocks appear to be so incredibly resistant to any form of negative sentiment or geopolitical event.
Again, stocks leaped higher yesterday, led by the Dow Jones closing up at approx. 0.65% and spurred on by US and Canadian Markit Manufacturing numbers for September which exceed expectations. Fed member talks on loose monetary environment also appears to be stimulatory. We saw some dovish comments by two Fed members Kashkari and Kaplan, with the former mentioning that the Fed "should not tighten rates until core inflation hits 2%". Kaplan highlighted that the bank has "room to raise rates, but not as much as people think." These kinds of comments definitely inject confidence into a market that is concerned at how ‘’quantitative tightening’ may take value out of financial markets.
The appalling massacre in Las Vegas had no real impact on Wall Street, though it seemed to mobilize a small shift to safe-haven assets such as gold and the Swiss franc – yet this could equally be due to Catalonian independence riots. The Spanish Government in Madrid is calling yesterday's Catalonian referendum illegal, a standpoint that the EU Parliament says it will discuss on Wednesday, even though a number of EU officials have come out noting that the incident is an internal Spanish matter. Certainly, within this backdrop, the EUR/USD is under pressure with the uncertainty that abounds. It currently trades around 1.1740, with support at 1.1690 and resistance 1.1840. This EUR/USD retrace is not surprising, considering the meteoric rise from 1.04 to its current level,and all within the first half of this year.Quite extraordinary as Euro/US monetary policies haven’t really changed in the course of this time. A stabilization at less heated euro levels is expected by market analysts.
Overnight, the Reserve Bank of Australia announced that it is maintaining interest rates at 1.50%, however money markets had only priced in a very low probability of rate hike by year-end at approx. 6%. The next hike is not expected until 2018 as systematic risks facing the Australian economy seem to be taking their time to dissipate.