29 Oct: Stocks down again. US$, yields lower despite solid US GDP release. BOJ, PBOC, BOE Meetings this week.

By | October 29, 2018

The US stockmarkets were again the main event on Friday, selling off sharply despite the firm US Q3 GDP data, led by the FANG stocks after Alphabet and Amazon failed to meet their quarterly profit expectations.  Further losses look likely in the days ahead as concerns about more disappointing earnings forecasts persist, although the volatility means a great deal of caution is required. In the currency markets, the US$ initially rallied on the good economic data but then reversed lower, in line with US yields which hit a 3 week low (US10Y @ 3.078%). The flight to safety meant that the Yen was in demand although US$Jpy did bounce off its lows late in the day, in line with the bounce in stocks. The other major currencies also bounced against the US$, and look good for further gains on Monday although Cable is probably best avoided as doubt grows about whether the UK and the European Union can clinch a Brexit deal. The Bank of England is expected to leave interest rates unchanged at the BOE Meeting on Thursday and will likely stress that while there are some signs of rising wage and price pressures, it will not be ready to tighten policy until there is clarity on Brexit.

Looking at the Fed’s planned interest rate policy in light of the current sell off in the stock markets,  a December rate hike is almost certainly a done deal, but the picture is changing into 2019. March Fed Funds futures are now only pricing in around 44% chance of another hike to 2.50-2.75%, sharply lower than 56% a week ago and also lower than 49% a month ago. For June, the chance of yet another hike to 2.75-3.00% stands at 26.5%, comparing to 36.3% a week ago and 30.1% a month ago. The change in Fed expectations might limit the dollar’s current rally attempt,  and may even cause a reversal although the medium/long term charts are yet to show any sign of this happening.

The metals were mixed and choppy, with Gold trading up to 1243 but then reversing lower to 1233, pretty much unchanged, while Silver did little. WTI ended up 0.5% on Friday but with its 3rd consecutive weekly loss, as the selloff in stocks keeps the pressure firmly on the downside.

This week will be a busy one, with plenty on the calendar, but with the main focus being on the Interest Rate Decisions from the BOJ, (Wed),  PBOC and BOE (Thur)  and, on Friday, the US employment report. Other key points will include the EU Preliminary Q3 GDP (Tue), Australian CPI, China Mfg PMI & EU CPI  (Wed), Australian Retail Sales (Fri).

Monday will be rather thin for most of the session, but look to the Japan Retail Trade (Sept), UK Budget Report and to the US Personal Spending figures for September, where the headline figure will be the Core US Personal Consumption/Expenditure Price Index (exp 2.0%). Have a good week.

Economic data highlights will include:                                                         

Mon: Japan Retail Trade, UK Consumer Credit, US personal Spending, Dallas Fed Mfg Business Climate

Tue: Japan Unemployment, UK Budget Report, CBI Distributive Trade Survey – Realised, Australian Building Permits, RBA Bullock Speech, German Unemployment, EU Q3 Preliminary GDP, Economic Sentiment Indicator, Industrial Confidence, Services Sentiment, Business Climate, German CPI, Case Shiller House Price Index

Wed: NZ Building Permits, ANZ NZ Activity Outlook, Business Confidence, Australian New Home Sales, Private Sector Credit, CPI, China Mfg/Non-Mfg PMIs, BOJ Interest Rate Decision/Press Conference/Statement, Japan Housing Starts, Construction Orders, Consumer Confidence Index, German Retail Sales, EU Unemployment, CPI, US ADP Jobs data, Chicago Purchasing Managers Index

Thur: Australian Performance of Mfg Index , China PBOC Interest Rate Decision, Caixin China Flash Manufacturing PMI, Swiss CPI, BOE Meeting/Statement/Minutes/Vote Count/APP Facility, US Markit Manufacturing/Services /Composite PMIs/ISM Mfg PMIs, ISM Prices Paid, Construction Spending, Total Vehicle Sales

Fri: Australian Retail Sales, PPI, EU Mfg PMIs, US Jobs/NFP/Average Hourly Earnings data

CURRENCIES
EURUSD: 1.1411
Res  1.1430  1.1450  1.1475
Sup  1.1395  1.1335  1.1365
USDJPY: 111.82
Res  112.00  112.25  112.55
Sup  111.60  111.40  111.20
GBPUSD: 1.2835
Res  1.2865  1.2895  1.2920
Sup  1.2800  1.2785  1.2760
USDCHF: 0.9969
Res  1.0000  1.0025  1.0070
Sup  0.9935  0.9900  0.9870
AUDUSD: 0.7093
Res  0.7105  0.7120  0.7150
Sup  0.7075  0.7055  0.7020
NZDUSD: 0.6524
Res  0.6535  0.6545  0.6555
Sup  0.6510  0.6495  0.6480
INDICES / COMMODITIES
S&P.fs: 2670
Res  2680  2690  2710
Sup  2655  2640  2625
DJ30.fs: 24688
Res  24770  24880  24975
Sup  24575  24505  24415
SPI200.fs: 5641
Res  5660  5685  5720
Sup  5615  5585  5565
XAUUSD: 1233
Res  1235  1240.00  1245
Sup  1230  1225.00  1220
XAGUSD: 14.69
Res  14.80  14.90  15.00
Sup  14.60  14.50  14.40
WTI.fs: 67.64
Res  67.85  68.50  69.30
Sup  66.75  66.20  65.30