14 Oct: Stocks jump on US/China trade deal optimism. Sterling up on Brexit hopes. US holiday today.

By | October 14, 2019

The US$ was mixed, but generally lower, while stocks rallied by more than 1% higher on Friday, athough they ended up well off the day’s highs after the announcement of a partial trade deal between the United States and China. Tariffs on $250 billion worth of goods have been suspended after some common ground seems to have been reached between the negotiatiors although there is still plenty of room for further easing of tensions, and trade headlines will continue to dominate the markets direction.  The US indices did give up some of their gains late in the session as traders took profit ahead of the US long weekend, but also because of some concerns that some potential glitches in the trade agreement. The main moves in the FX market were seen in Sterling, which had another strong move up on the improved Brexit headlines  after the UK/Irish PMs met each other and sounded positve about the outcome, leading to increasing hopes of an amicable divorce agreement between the UK/EU, dragging the Euro along with it. The Aud and Kiwi both liked the US/China trade outcome and squeezed higher, while the decline in the need for a safe-haven saw the Jpy, and to a lesser extent the Chf, come under some downside pressure. Gold suffered as well, as safe-haven demand dried up, while WTI liked the trade outcome and rallied by 1.7%.

Note that global bond yields also headed sharply higher on Friday as risk sentiment picked up. The charts for US yields do look as if they may be basing on both the daily and weekly timeframes, and given the differing feel of the US economy, when compared to the rest of the world, this may provide ongoing support for the US$ as we head towards Christmas. However, another Fed rate cut should not be ruled out if the data continues to show a slowing economy, depsite the recent, strong employment data which showed that the headline unemployment rate sits at just 3.5%. Note also that the third quarter earnings from US companies begins this week.  In light of the last few months in which the economy has grappled with the  US/China trade conflict, generally undermining the business environment, analysts are forecasting a 3.2% decline in earnings for the 3rd quarter from a year ago.

The coming week has a rather thin calendar, but with some important items on the agenda although it looks like being a quiet Monday given the US Columbus Day holiday. We do get the China September Trade Balance today (exp +$33.30 bio; Exports -3%yy, Imports -5.3%yy), to be followed by the CPI/PPI tomorrow (CPI, exp +0.6%mm, +2.9%yy; PPI, exp -1.2%yy). Tuesday also sees the RBA Minutes, which will be closely watched for signs of any hint of the timing of the next rate cut, as well as the September UK Unemployment data and the German/EU ZEW Economic Sentiment Survey. Wednesday kicks off with the NZ Q3 CPI, and then later we will see the UK/EU CPI for September as well as the US Retail Sales/Business Inventories. Thursday begins with a speech from the RBA’s Debelle, the NAB Business Conditions/Confidence figures and the Australian monthly Unemployment figures (Sept), and comes ahead of the UK Retail Sales and a busy US session; Housing Starts, Building Permits, Philadelphia Fed Mfg Survey, Capacity Utilisation, Industrial Production, Jobless Claims. Friday will have more Chinese data; Q3 GDP, September Retail Sales, Industrial Production and the NBS Press Conference, in what will otherwise be a quiet end to the week. Have a good day.

Economic data highlights will include:

Mon: US Columbus Day Holiday, China Trade Balance, EU Industrial Production, BOE’s Cunliffe Speech

Tue: NZ Visitor Arrivals , RBA Minutes, China CPI, Japan Capacity Utilisation, Industrial Production, Tertiary Industry Index, UK Unemployment, German/EU ZEW Economic Sentiment Survey, US New York State Empire Mfg Index, Fed’s Bullard Speech

Wed: NZ Q3 CPI, UK CPI, PPI, RPI, EU Trade Balance, CPI, US Retail Sales, Business Inventories, NAHB Housing Market Index, EIA Crude Oil Stocks Weekly Change

Thur: RBA’s Debelle Speech, Australian NAB Business Conditions/Confidence, Unemployment, UK Retail Sales, BOE Q3 Credit Conditions, US Housing Starts, Building Permits, Philadelphia Fed Mfg Survey, Capacity Utilisation, Industrial Production, Jobless Claims

Fri: Japan National CPI, China Q3 GDP, September Retail Sales, Industrial Production, NBS Press Conference, German Wage Price Index, EU Current Account, Fed’s Kaplan Speech

Market moves, in brief:

FX: DXY 98.33 (-0.36%)

Bonds: US10Y; 1.735% (+3.77%), German 10Y; -0.441% (+7.71%), UK 10Y; +0.626% (+32.5%), Australian 10Y; 1.025% (+13.25%), NZ 10Y; 1.167% (+10.46 %), China 10Y; 3.157% (+1.27%)

Stock Indices: DJI; +1.21%, S+P; +1.09%, NASDAQ; +1.34%, EUStoxx50; +2.17%, FTSE100; +0.84%, Shanghai Composite; +0.88%,

Metals: Gold $1489 oz (-0.31%), Silver $17.55 oz (+0.31%), Copper $2.6240 lb (+0.40%), Iron Ore $92.86 per tonne (NYMEX) (-0.16%),

Oil: WTI $54.78 pb (+1.69%)

EURUSD: 1.1038
Res  1.1065  1.1085  1.1110
Sup  1.1025  1.1000  1.0980
USDJPY: 108.32
Res  108.60  108.85  109.10
Sup  108.10  107.85  107.60
GBPUSD: 1.2651
Res  1.2715  1.2750  1.2785
Sup  1.2625  1.2580  1.2535
USDCHF: 0.9971
Res  0.9975  0.9990  1.0005
Sup  0.9955  0.9940  0.9925
AUDUSD: 0.6791
Res  0.6810  0.6825  0.6840
Sup  0.6785  0.6770  0.6755
NZDUSD: 0.6332
Res  0.6355  0.6375  0.6400
Sup  0.6315  0.6295  0.6275
S&P.fs: 2970.78
Res  2990.00  3010.00  3030.00
Sup  2950.00  2930.00  2905.00
DJ30.fs: 26793.00
Res  26885.00  27040.00  27180.00
Sup  26625.00  26500.00  26370.00
SPI200.fs: 6626
Res  6650  6670  6685
Sup  6605  6585  6560
XAUUSD: 1487.72
Res  1495.00  1505.00  1515.00
Sup  1480.00  1470.00  1460.00
XAGUSD: 17.54
Res  17.60  17.70  17.80
Sup  17.40  17.30  17.20
WTI.fs: 54.65
Res  55.00  55.60  56.15
Sup  54.20  53.60  53.10