There is a mildly negative feel to trading sentiment for the new trading week. Traders were a touch betwixt and between with how to respond to Friday’s payrolls report and although the US bond markets shut for Columbus Day today, which could have given rise to a subdued session today. However although bond markets have been key to driving market sentiment in recent sessions, away from the US, there are two major factors that are driving market moves today and set to push a stronger dollar by proxy. In China, after the lull of Golden Week, the People’s Bank of China has cut the reserve requirement ratio by 100 basis points which could pull a weaker yuan and concerns across emerging Asian currencies. Furthermore, this morning, we see Italian bond yields pushing higher once more as the stand-off over the Italian budget continues. Italian 10 year yields are now over 3.5% on the tens (for the first time since 2014) and this is pushing the spread over German Bund well over 290 basis points again. This is a drag on the euro. A stronger dollar comes from the risk negative impacts of these factors and equities are slipping again. It will be interesting to watch sterling though today after reports that some positive traction was coming in the Brexit negotiations whilst Japanese Prime Minister Abe suggested that the UK would be welcomed into the Trans Pacific Partnership with “open arms”. There will be a key speech on Wednesday from Michel Barnier, the EU’s chief Brexit negotiator, and as European traders take over today, sterling is slipping back again.
Wall Street close lower again on Friday with the S&P 500 -0.5% at 2885 although futures are a touch lower in early moves today. In Asia, Japan is closed for public holiday, whilst China has returned from Golden Week with a raft of selling to play catch up on. European markets are taking a mixed to negative outlook in early moves today. In forex, sterling is an underperformer, whilst the euro is also under pressure. In commodities, gold has dropped back by $6 (-0.5%) whilst oil is also continuing to slip lower for a third straight session.
There are no major economic releases today. Also Japan has a public holiday for Health-Sports Day and the US has a public holiday for Columbus Day. US equities are open but the bond markets are shut today.
Chart of the Day – GBP/JPY
Is Sterling about to break decisively higher again? Amidst the volatility of the UK party conference season and Brexit chatter, GBP/JPY has been consolidated above a near term breakout at 147.00 which is an old pivot and has become supportive again. This has simply become a consolidation within the recovery uptrend of the past seven weeks. Three positive candles are building upside pressure again, whilst momentum indicators having slipped back are beginning to turn higher again. Especially, the focus comes with the Stochastics turning up, and the MACD lines threatening too. The medium term breakout of the 8 month downtrend has become supportive whilst the 144 day moving average which had been a basis of resistance is now supportive. There is still considerable overhead resistance in the 149.70/150.00 range to be overcome, but the fact that in a risk averse market environment and Brexit wobbles, the support for sterling has bee