Markets continue to trade with a lack of certainty as newsflow of major macro factors remain on a knife edge. However, slight chinks of light over the weekend are generating a mild positive risk bias this morning. In one final (?) attempt to break a deadlock on US fiscal support, Democrat House Speaker Pelosi gave a 48 hour deadline over the weekend. It means that the next couple of days could generate elevated volatility on any announcements, but markets are taking this as a positive. Furthermore, although no agreement has been reached yet between the EU and UK on a post-Brexit trade deal, there were suggestions over the weekend, that there could be changes to the controversial UK Internal Market Bill in order to ease the log-jam. Sterling has ticked higher early today. China’s Q3 GDP missed expectations (4.9% actual, versus 5.2% forecast), although other data for September (Retail Sales and Industrial Production) beat expectations to ease any negative aspect from the growth data. Taking all that in, there is a very slight edge of positive bias to sentiment this morning. US yields are ticking higher, which is translating to marginal US dollar weakness (USD is still very much acting as a safe haven now). US equity futures are taking a bit of a lead too, but this is coming to balance a disappointing drop into the close on Friday.
Wall Street closed mixed on Friday with the S&P 500 half a tick higher at 3483, whilst futures are kicking back higher today (E-mini S&Ps +0.6%). Asian markets were mixed to positive, with the Nikkei +1.1% and Shanghai Composite -0.6%. In Europe, we see consolidation early, with FTSE futures -0.1% and DAX futures all but flat. In forex, there is a slight positive risk bias and USD negative, with GBP a main outperformer, whilst NZD is also strong after the incumbent Labour Party won a majority in the New Zealand general election. In commodities, the mild edge of USD negative bias is helping gold higher by +05% and silver +1.7%. Oil continues to lack direction, -0.3% early today.
It is a pretty sparse economic calendar today, with little to really trouble traders.
All the action however, comes with a whole swathe of central bank speakers. Fed chair Jerome Powell speaks at 1300BST and is always worth watching. Other Fed speakers include Richard Clarida (vice Fed chair, leans a touch dovish) at 1645BST and Patrick Harker (voter,. Leans a touch hawkish) at 2000BST. There is also ECB President Christine Lagarde to watch at 1345BST.
Chart of the Day – FTSE 100
Wall Street indices are in apparent bull market corrections, whilst the DAX is slightly lagging Wall Street as it trades in a multi-month range. However, languishing all of these we come to the FTSE 100. The old adage is that the high tide lifts all boats, well FTSE 100 is doing its hardest to prove that wrong. Since the June high of 6510, there has just been a stream of lower highs and lower lows which effectively now leaves the FTSE in a downtrend channel. This is marked by the daily RSI consistently seeing rallies failing around 55/60 before selling phases move down to the mid-30s. This suggests a bearish drift, where selling into strength remains the prime strategy. A sharp bull candle on Friday may give rise to a near term technical rally again, but it is rather like shifting deckchairs on the Titanic still. Unless something big changes (perhaps a Brexit trade deal), we favour seeing another lower high failing around the 38.2% Fibonacci retracement of the big COVID sell off (7687/4899) around 5964. A slightly sharper downtrend comes in at 6000 today leaving the bulls needing to make a decisive move above last week’s high of 6037 to hold any real prospect of a sustainable rally. It leaves a near term sell-zone 5975/6040. We favour selling into this rebound for a retest of the 5770 September lows before a retreat towards the channel lows which currently come in around 5680.
We are increasingly looking at EUR/USD as being a market lacking direction. A two week drift higher subsequently spent last week retracing back lower. However, the market has spent recent sessions holding around the old 1.1695 support area with Friday’s small candlestick body filtering into an early lack of conviction again today. Although we still see momentum indicators (RSI, MACD) broadly flattened, the falling Stochastics lends a slightly negative bias. A decisive close below 1.1685 would open pressure on 1.1610 key September support. Initial resistance at 1.1720/1.1745.