Traders are still trying to make sense of what Donald Trump’s COVID-19 infection means to risk appetite. There are some suggestions that he is stable yet also that he is on a steroid treatment only used for the more severe of cases. The broad assessment is that Trump will really struggle over the final month of the Presidential election campaign. Quite how the voters of the US make of this may be reflected in the opinion polls, but if voters do not know what a Trump presidency brings now, they must have been living in a hole for the past four years. Markets are a little more settled today, with risk appetite recovery after taking a hit on Friday. There may well be further room for elevated volatility on updates to Trump’s health, but for now, the start of this week looks to be fairly positive for risk. With ever rising COVID second wave fears though, it will be interesting to see if this improvement in risk can last. A weaker yen is a standard response, whilst it is interesting to see the dollar not suffering too much. Gold unwinding some of its recent gains (even as the dollar is slipping slightly today) is a little surprising and is worth keeping an eye on. An equities rebound is the main risk positive response, along with oil bouncing too. There is still a sense that markets are sitting at a crossroads though, albeit with elevated volatility. The next trend that begins to form could therefore be crucial to the medium term outlook.
Wall Street closed lower on Friday with the S&P 500 -1.0%, however, much of this seems set to be recovered today, with the E-mini S&P futures +0.6% early today. In Asia, a decent session has seen the Nikkei +1.2% whilst the Shanghai Composite was -0.2%. European indices also look set for decent early gains, with FTSE futures +1.0% and DAX futures +0.7%. In forex, there is a mild risk positive view taken, with JPY being the main underperformer, whilst USD is also slightly weaker. In commodities, gold has slipped back by -$5 (c. -03%) whilst silver is positive by +0.5%. The big mover seems to be a rebound on oil which is just under +2% higher.
Today is all about services PMIs on the economic calendar. The final Eurozone Services PMI is at 0900BST and is expected to be unrevised at 47.6 (47.6 flash, 50.5 final August) which would leave the final Eurozone Composite PMI at 50.1 (50.1 flash September, down from 51.9 final August). The final UK Services PMI is expected to be revised slightly lower to 55.0 (from 55.1 flash September , down from 58.8 final August). This would mean the final UK Composite PMI being revised slightly lower to 55.5 (from 55.7 flash September, and down from 59.1 final August). The ISM Non-Manufacturing PMI is at 1500BST and is expected to slip slightly to 56.3 (down from 56.9 in August).
Chart of the Day – DAX
After another very choppy week of trading, the outlook for the DAX appears to be lacking conviction. Stepping back, the market seems to have developed a three month consolidation range between 12,253 (the late July low) and 13,460 (September high). We recently discussed a couple of pivot lines within this range, at 12,630 and 12,800 and the market still seems to be stuck around this as a neutral zone. After last Monday’s sharp rally faltered the market has since been stuck and unable to make real direction either higher or lower. This culminated in Friday’s solid positive candlestick which came amidst a session that closed lower. It means that significant initial selling was bought into the close. Momentum indicators have tailed off and have lost their conviction at or around mid-points (although arguably tailing off just under neutral points lends a slightly negative bias). It means that the new trading week leaves the bulls needing to overcome resistance at 12,875 to improve the outlook within the range again. Early signs on the futures suggest a solid start to the week could bring a test of 12,875 into site. A closing breakout would be a bullish signal within the range again. This is also leaving behind 12,540 as initial support.
The pair still stands at a crucial near to medium term crossroads as the old support band 1.1695/1.1750 continues to contain recent price action. Add to this the barrier of the four week downtrend (today at 1.1765) and the importance of this period of trading grows further. Momentum indicators picked up early last week as EUR/USD rallied from 1.1610 and they also sit around important neutral levels. The RSI especially, flattening off around 50 is key. After Friday’s decisive negative candle which stopped the bull recovery momentum, it means that a second negative candle today with a close back under 1.1695 would begin to increase the downside pressure. However, the bulls are holding firm this morning to leave the market on a knife edge. Having consolidated for a number of sessions, a close above last week’s high of 1.1770 would be a decisive positive signal. However, for now, this is an uncertain market.
Cable is looking to edge higher even amidst the uncertainty of a number of hugely significant fundamental factors weigh into the near term price action (Trump’s health and Brexit trade negotiations primarily). Cable moved higher on Friday with a sense that near term weakness still remains a chance to buy. We have previously talked of a pivot around 1.2860 and closing above here is still a gauge for the bulls to remain in control