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Copper future contract for December delivery fell further on Wednesday, extending pullback from three –year high at $3.2580 posted on Monday.

Fresh bearish extension on Wednesday dented strong support at $3.1770 (former high of 05 Sep/Fibo 23.6% of $2.8930/$3.2580 rally) and shows signs of further easing as bearish signal is generating on reversal of daily RSI and slow stochastic from overbought zone. Firm break here would risk bearish extension towards next strong supports at $3.1186/10 (Fibo 38.2%/Monday's low/rising 10SMA). Break here would sideline bulls and signal deeper correction.

Markets are closely watching the announcement from China's Communist Party Congress which started today and has boost of manufacturing and construction activities in the agenda.

China is the top consumer of metal and strengthening of these sectors signals higher demand and higher price of Copper. Traders expect more negative tones from the meeting which could signal deeper correction but larger picture shows strong uptrend which is expected to resume after correction.

Res: 3.2145, 3.2415, 3.2580, 3.2855
Sup: 3.1715, 3.1345, 3.1110, 3.0755

Notes/Observations

UK earnings data beat expectations and keeps market on edge for possible BOE rate hike in coming months

UK ILO Unemployment steady and matches its 42-year low

Overnight

Asia:

China President Xi opened the 19th National Congress (held every 5 years): China to continue to grow at medium to high speed, economy shifting to period of seeking high quality. Reiterates pledge to deepen market-oriented reform of its exchange rate as well as its financial system, while at the same time strengthening the role of state firms in the economy

China FX Regulator SAFE: Expect CNY currency (yuan) exchange rate to have more stable foundation after 19th party congress

Europe:

ECB's Hansson (Estonia): Economic optimism may warrant 'small' monetary changes

Spain said to be planning to govern Catalonia from Madrid. Central government plan would include allowing Generalitat President Puigdemont to remain in office, but would strip him of power, with the central government assuming the functions of government in Madrid.

Business Europe advocacy group letter to EU’s Tusk stated that Euro companies were extremely concerned with slow pace of Brexit talks. Urged British government to rapidly provide concrete negotiating proposals to advance talks; want to avoid cliff edge

Northern regions Lombardy(Milan) and Veneto (Venice) to hold votes on regional autonomy on Sunday, Oct 22nd (**Insight Unlike Catalonia's vote, outright independence from the rest of Italy is not on the ballot)

Americas:

Fed's Harker (hawk, voter): Sees one more rate increase in 2017 and 3 in 2018

President Trump: I will make a decision about Fed Chair in a short time; I like all 5 candidates (**Note: expected to announce Fed decision before he leaves for Asia trip on Nov. 3rd)

Treasury semi-annual currency report again did not name an FX manipulators; removed Taiwan from the watch list while China, Germany, Japan, South Korea, and Switzerland remain on the monitoring list. Chinese currency has moved recently in a direction that would help correct the bilateral trade imbalance with the US

NAFTA ministers joint statement: to extend NAFTA talks beyond end of 2017 deadline; to lengthen the period between round four and round five of NAFTA talks

Energy:

Weekly API Oil Inventories: Crude: -7.1M v +3.1M prior

Economic Data

(ZA) South Africa Sept CPI M/M: 0.5% v 0.4%e; Y/Y: 5.1% v 5.0%e (6th straight reading within the SARB target)

(ZA) South Africa Sept CPI Core M/M: 0.4% v 0.3%e; Y/Y: 4.6% v 4.5%e

(UK) Aug Average Weekly Earnings 3M/Y/Y: 2.2% v 2.1%e; Weekly Earnings Ex Bonus 3M/Y: 2.1% v 2.0%e

(UK) Sept Jobless Claims Change: +1.7K v -0.2K prior; Claimant Count Rate: 2.3% v 2.3% prior

(UK) Aug ILO Unemployment Rate: 4.3% v 4.3%e (holds at 42-year low)

(EU) Euro Zone Aug Construction Output M/M: -0.2% v 0.2% prior; Y/Y: 1.6% v 2.8% prior

Fixed Income Issuance:

(DK) Denmark sold total DKK1.92B in 2020 and 2027 DGB bonds

(SE) Sweden sold total SEK2.5B in 2022 and 2028 Bonds

(NO) Norway sold NOK3.0B vs. NOK 3.0B indicated in 2021 Bonds; Avg Yield: 0.92% v 1.01% prior; Bid-to-cover: 2.65x v 2.01x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.2% at 391.3, FTSE +0.3% at 7537, DAX +0.3% at 13027, CAC-40 +0.2% at 5371, IBEX-35 -0.3% at 10184, FTSE MIB -0.1% at 22305, SMI +0.2% at 9292, S&P 500 Futures flat]

Market Focal Points/Key Themes:

European Indices trade mostly higher across the board with the Spanish IBEX once again under performing. The range remains narrow continuing the muted moves seen in October.

Dutch names Akzo Nobel reported results which missed consensus, as well as cutting its outlook, elsewhere ASML saw positive results, however shares do trade lower. Reckitt Benckiser trades slightly low after missing estimates, as well as announcing the creation of two new business units.

Other notable movers include Elisa after in line results, while Duerr trades lower despite raising their outlook.

Looking ahead notable earners include Abbott Labs and US Bancorp.

Equities

Consumer discretionary [RWS [RWS.UK] -15% (Acquistion, Placing), Zalando [ZAL.DE] -3.1% (prelim Q3)]

Materials: [Akzo Nobel [AKZA.NL] -1.7% (Earnings)]

Industrials: [ Duerr [DUE.DE] -2.9% (Lifts outlook)]

Technology: [ ASML [ASML.NL] -0.5% (Earnings)]

Telecom: [ Elisa [ELISA.FI] -5% (Earnings)]

Healthcare:[ Reckitt Benckiser [RB.UK] -0.4% (Earnings, cuts outlook), Biomeriux [BIM.FR] +1.1% (Earnings)]

Speakers

ECB chief Draghi reiterated his view that had a window of opportunity to enact structural reforms with monetary policy being accommodative,

Germany Constitutional Court rejected injunction to stop Bundesbank participation in ECB's asset purchases. Plaintiffs must wait until end of proceedings when judges could still ban Bundesbank participation (**Reminder: On Aug 15th German Federal Constitutional Court sent a lawsuit targeting ECB QE program to European Court of Justice)

Spain PM Rajoy: Have acted with moderation on Catalonia; reiterates call that leader Puigdemont to clarifyits independence claim

Spain Dep PM Saenz: Spain will apply article 155 if Catalans do not comply

Spain Budget Min Montoro: To present 2018 budget in coming weeks

Currencies

USD maintains a steady tone with market participants continuing to focus on Trump appointment for the Fed Chair position. Recent speculation was that Sanford’s Taylor was leading the contention (seen as hawkish thus USD bullish).

GBP traders were focus on unemployment and earnings data out of the UK. The slight beat on hourly earnings kept the door open for BOE to possible enact a rate hike in coming months. UK ILO Unemployment steady and matches its 42-year low. GBP/USD initially tested 1.3212 in the aftermath of the data but quickly saw the move retrace

EUR/USD was little changed in the session as ECB chief Draghi provided no clues on monetary policy ahead of next week’s rate decision.

USD/JPY was higher with focus on the upcoming Japanese elections (Oct 22nd) seen as maintain its Abenomic path to recovery.

The CNY currency (Yuan) was firmer as Chinese President Xi Jinping pledged to deepen reforms in his address at the 19th Party Congress

Fixed Income

Bund futures trade at 162.45 down 18 ticks as Federal Constitutional Court rejects bid to stop the Bundesbank ’ s cooperation with European Central Bank on quantitative easing program while lawsuits challenging the bond-buying plan are pending.Resistance stands initially at 162.75, followed by 163.51.

Gilt futures trade at 124.63 down 29 ticks after British unemployment rate stayed steady in August and wage inflation beat estimates. Continued downside eyeing 123.26. Upside targets 124.90 then 125.24.

Wednesday’s liquidity report showed Tuesday’s excess liquidity rose to €1.812T from €1.813T and use of the marginal lending facility climbed to €320M from €160M.

Corporate issuance saw $3B come to market via 3 issuers, headlined by Banco Santander $2.5B debt offering.

Looking Ahead

(SA) Saudi Arabia Crude Oil Data Published: JODI

05:30 (DE) Germany to sell €1.0B in 1.25% Aug 2048 Bunds;

05:30 (PT) Portugal Debt Agency (IGCP) to sell €1.0-1.25B in 3-month and 12-month bills

06:00 (BR) Brazil Oct FGV Inflation IGP-10 M/M: 0.5%e v 0.4% prior

06:30 (BR) Brazil Aug Economic Activity Index (Monthly GDP) M/M: -0.3%e v +0.4% prior; Y/Y: 2.0%e v 1.4% prior

06:45 (US) Daily Libor Fixing

07:00 (US) MBA Mortgage Applications w/e Oct 13th: No est v -2.1% prior

07:00 (ZA) South Africa Aug Retail Sales M/M: +0.3%e v -0.6% prior; Y/Y: 2.7%e v 1.8% prior

07:00 (RU) Russia to sell combined RUB30B in 2021 and 2033 OFZ bonds

07:30 (IT) ECB’s Angeloni (SSM Board member) in Berlin

07:45 (BE) ECB’s Praet (Beligium, chief economist)

08:00 (PL) Poland Sept Sold Industrial Output M/M: 6.8%e v 5.9% prior; Y/Y: 5.2%e v 8.8% prior

08:00 (PL) Poland Sept Retail Sales M/M: -1.1%e v +1.2% prior; Y/Y: 7.9%e v 7.6% prior

08:00 (PL) Poland Sept PPI M/M: 0.3%e v 0.4% prior; Y/Y: 3.1%e v 3.0% prior

08:00 (US) Fed’s Dudley (dove, FOMC voter) with member Kaplan (moderate, voter) on economic development

08:05 (UK) Baltic Dry Bulk Index

08:30 (US) Sept Housing Starts: 1.175Me v 1.180M prior; Building Permits: 1.240Me v 1.272M prior (revised from 1.300M)

08:30 (CA) Canada Aug Manufacturing Sales M/M: -0.3%e v -2.6% prior

09:00 (RU) Russia Sept Real Retail Sales M/M: -1.0%e v +3.8% prior; Y/Y: 2.1%e v 1.9% prior

09:00 (RU) Russia Sept Unemployment Rate: 4.9%e v 4.9% prior

10:15 (FR) ECB’s Coeure (France) on panel in Frankfurt

10:30 (US) Weekly DOE Crude Oil Inventories

11:00 (CO) Colombia Aug Trade Balance: -$0.9Be v -$0.5B prior

• Earnings season in focus as stocks target new highs;
• USD rebound continues on prospect of hawkish new Fed Chair;
• Oil higher on inventory report but will EIA back up the numbers?

US futures are pointing to another higher open on Wall Street on Wednesday, as companies prepare to report on the third quarter at a time when indices are hitting fresh record highs on an almost daily basis.

Companies started reporting third quarter results last week and while the number has picked up this week, it will likely dominate more and more over the coming weeks. Coming on the back of impressive second quarter results and in a more positive global economic environment, expectations are quite high for Q3, even taking into account the detrimental impact of the hurricanes towards the end of the quarter.

The dollar is trading higher again this morning as the possibility of a more hawkish Federal Reserve Chair succeeding Janet Yellen in February raises the prospect of more interest rate hikes next year. Market expectations for interest rates next year are already well below those of the central bank, should Yellen be replaced by someone of a more hawkish nature, the market could find itself well behind the curve.

We've seen something of a recovery in the greenback over the last month or so but even still, it's not a million miles from its lows and has some way to go to pare the substantial losses suffered this year. A break and hold above 94 in the dollar index may signal such a correction, which may be well supported into the end of the year should a more hawkish Chair appointment be announced and Congress make progress on healthcare and, more importantly, tax reform.

In the meantime it's over to William Dudley and Robert Kaplan to provide an update on where the central bank stands on interest rates. While the Fed may have signalled an intention to raise interest rates once more this year and three times next, a number of policy makers have since expressed concern at the lack of inflation, something that also came across in the minutes from the meeting. Kaplan is among those that has shown a willingness to be patient and it's unlikely that recent data will have changed his views on this.

Another highlight on Wednesday will be crude inventory numbers from EIA, which come after API reported a significant drawdown on Tuesday of 7.13 million barrels. Oil has been on another impressive run as of late, supported by higher global demand, a rebalancing of the market and more recently, supply disruptions in Iraq. A similar drawdown today may provide another boost but given the moves we've seen since the summer, I do wonder how much higher we can go in the short-term.

Wednesday October 18: Five things the markets are talking about

Regional equity bourses are providing mixed results as investors patiently wait for the next catalyst to deliver directional support. A plethora of central bankers are due to speak today (ECB’s Draghi, NY Fed Dudley and Dallas Fed President Kaplan), and a deadline on Catalonia’s independence claim from Spain is forthcoming.

Note: Catalonia has until tomorrow to back down from a challenge to separate.

The ‘mighty’ dollar is little changed as the market continues to fixate on speculation about the next Fed head – volatility across G7 currency pairs is trading atop of a three-month low.

In China at the opening of the twice a decade 19th Chinese Party Congress, President Xi said that China “will push ahead with market-oriented reforms of its foreign exchange rate as well as its financial system, and let the market play a decisive role in the allocation of resources.”

Note: Later this evening, China will releases data for GDP, industrial production and retail sales.

1. Stocks mixed performance

In Japan, the Nikkei share average rallied for a 12th consecutive day overnight, finding support on hopes that this weekend’s election will produce political stability and continuation of loose monetary policy. PM Abe coalition is on track for a roughly two-thirds majority in this weekend’s general election. Both the Nikkei and broader Topix ended up +0.1% higher.

Down-under, Australia’s S&P/ASX 500 index ended flat, while South Korea’s Kospi index was little changed.

In Hong Kong, the Hang Seng index inched lower, while the Shanghai Composite Index was up +0.1%.

In China, blue-chip stocks ended at a 26-month high as party congress opens. Investors are pinning their hopes on reforms to boost domestic growth. The blue-chip CSI300 index rallied +0.8%, while the Shanghai Composite index added +0.3%.

Note: Despite investors seeking direction on economic and financial market reform over the next five-years, China’s leadership events historically have been light on detail.

In Europe, regional indices trade mostly higher across the board with the Spanish IBEX once again under performing, however, ranges again remain relatively tight.

U.S stocks are set to open unchanged.

Indices: Stoxx600 +0.2% at 391.3, FTSE +0.3% at 7537, DAX +0.3% at 13027, CAC-40 +0.2% at 5371, IBEX-35 -0.3% at 10184, FTSE MIB -0.1% at 22305, SMI +0.2% at 9292, S&P 500 Futures flat

2. Oil prices rise on tighter U.S market, Middle East tensions, and gold lower

Oil prices have rallied overnight, lifted by a fall in U.S crude inventories and concerns that tensions in the Middle East could disrupt supplies.

Brent crude futures are at +$58.16, up +28c or +0.5% from their last close, while U.S West Texas Intermediate (WTI) crude futures are at +$52.03 per barrel, up +15c, or +0.3%.

Note: Trading volumes were limited during Asian hours due to a public holiday in Singapore, Malaysia and parts of India.

API data from the U.S Tuesday showed a big draw – inventories fell by -7.1m barrels in the week to Oct. 13 to +461.4m barrels.

Investors are expected to take direction from today’s EIA report (10:30 am EDT). The market is looking for another drawdown of -4.7m barrels.

Ahead of the U.S open, gold prices remain on the back foot as the dollar strengthened a tad amid speculation that the next U.S Fed chief may be a policy hawk. President Trump is likely to announce his choice before going to Asia in early November. Spot gold is down -0.1% at +$1,283.16 an ounce.

3. Sovereign yield back up

Reports that President Trump might pick John Taylor to lead the Fed after Janet Yellen’s term ends next year has sent two-year U.S Treasury yields to their highest level in nine-years this week.

Taylor is an advocate of a rules-based approach to interest rate policy that would likely see official Fed rates much higher than at present – at least +3.5% according to some observers.

The back up in short-yields (U.S 2’s +1.53%) has not been matched at the long-end. The yield on 10-year Treasuries gained +1bps to +2.31%.

With no eurozone macro-economic data on tap, the German Bund market continues to focus on speeches by ECB officials ahead of next week monetary policy meeting (Oct 26).

Note: The market’s expectations on how the ECB will taper QE have shifted to a nine-month extension at +€30B of purchases per month, rather than the previously expected six-month extension at +€40B.

Germany’s 10-year Bund yields have increased +1 bps to +0.38%, while Spain’s 10-year yield decreased less than -1 bps to +1.578%.

4. Dollar’s tentative support

The ‘mighty’ USD is maintaining a steady bid tone with market participants continuing to focus on Trump’s appointment for the Fed Chair position.

GBP (£1.3170) traders have been focusing on unemployment and earnings data out of the U.K this morning. The slight beat on hourly earnings has kept the door open for a possible BoE rate hike as soon as next month. The U.K’s unemployment data (see below), which is steady, did provide some underlying support, however, Brexit discussion concerns continue to provide the pound with resistance.

The EUR/USD (€1.1747) is little changed in the session, as ECB chief Draghi provided no clues on monetary policy ahead of next week’s rate decision. USD/JPY (¥112.73) is higher with focus on the upcoming Japanese elections (Oct 21/22) seen as maintaining its Abenomics path to recovery.

CNY is a tad firmer as Chinese President Xi pledged to deepen reforms in his address at the 19th Party Congress.

5. U.K real wages fall, job growth peaks

Data from the ONS (Office of National Statistics) revealed that real wages in the U.K fell in August for the fifth month in row. Wage growth after inflation in August was -0.3% as inflation once again outpaced pay increases.

Other data suggests that the U.K’s buoyant job growth may be coming to an end. The number of people in work in the month of August was -108k fewer than in May, while there were +208k more people saying they were not looking for work.

Note: Monthly labor market statistics can be volatile. The ONS puts more emphasis on three-month averages, which continued to show gains in employment and a decline in inactivity in the three months through August.

Nevertheless, many continue to question how the U.K could sustain its growth streak given a slowing economy and uncertainty around Brexit.

The CAC index has inched lower in the Wednesday session. Currently, the CAC is trading at 5,382.30, up 0.40% on the day. On the release front, there are no French or eurozone events on the schedule. Earlier in the day, ECB President Mario Draghi spoke at an ECB conference in Frankfurt. Draghi addressed structural reforms in the eurozone economy, but did not discuss the ECB’s monetary policy.

The CAC has not posted a winning daily session in almost two weeks, but that streak could be over on Wednesday. European stock markets are in green territory, as European corporate earnings for the third quarter are being released. Earnings for the third quarter are expected to be 4.5 percent higher than a year ago, and the positive sentiment has led to gains for almost all of the companies on the CAC. In the financial sector, BNP Paribas is leading the way, with a strong gain of 1.37%. Credite Agricole is also higher, up 0.58%.

What’s next for Catalonia? The cat-and-mouse game between the Spanish and Catalan governments continues, as a Thursday deadline looms. The Spanish has given Catalan President, Carles Puigdemont until Thursday to recant his declaration of independence. If Puigdemont refuses, Madrid has threatened to trigger Article 155 of the Spanish constitution, which would allow the central government to disband the Catalan parliament and impose direct rule. However, this clause has never been used, and could set off a violent reaction in Catalonia, with emotions already at a fever pitch. The deepening constitutional crisis has led hundreds of companies to start leaving Catalonia, and the Standard and Poor’s rating agency has said that the region could face a recession if the situation is not resolve. Investment projects are at a standstill in the region, and if the situation worsens, investors could get nervous and the European stock markets could respond with losses.

Spot Gold extends weakness into third straight day and probes below strong support at $1281 (daily cloud base). Long bearish daily candles of past two days weigh, with Tuesday's fall marking the biggest one-day loss in three weeks. Gold remains under pressure on stronger dollar and speculations about successor of Janet Yellen as chair person of US Federal Reserve, as President Trump favors more hawkish person and John Taylor is currently a front-runner. Daily Ichimoku studies are turning into full bearish setup on daily chart and favor further downside. Firm break below daily cloud and violation of another pivotal support at $1277 (Fibo 61.8% of $1260/$1306 upleg) will be strong bearish signal for extension towards $1271 (Fibo 76.4%). Speeches from several FOMC members will be in focus today for further signal of rate hike in December, which is widely expected as the latest data show around 90% chance of FOMC action in December.

Res: 1285, 1288, 1290, 1296
Sup: 1279, 1277, 1275, 1271

WTI oil holds positive tone on Wednesday and holding in tight range around $52.00 handle but without clear-near-term direction.

Underlying bull-trend remains intact but Tuesday’s close in long-legged Doji signaled indecision under fresh nearly three-week high at $52.35.

Upbeat release of API Crude stocks data on Tuesday (7.1 mln bls draw vs 4.2 mln bls draw forecasted) was not enough to push the price higher as concerns of supply disruption from Iraqi oilfields eased after Iraqi troops took control of Kirkuk area.

Also, overbought slow stochastic on daily chart weighs on near-term action and may generate bearish signal on reversal.

Focus turns towards EIA Crude stocks report, due later today. Forecasts show draw in crude inventories for 1.45 million barrels, signaling oil stocks fell for the fourth straight week, which is expected to be supportive for final push towards key barrier at $52.84.

Near-term action is supported by thick hourly cloud (spanned between $51.88 and $51.60) which should ideally limit downside attempts.

Deeper dips are expected to find ground at $51.00 zone (rising 20SMA).

Res: 52.15, 52.35, 52.84, 53.18
Sup: 51.88, 51.60, 51.20, 51.00

Due to release of better than expected data on import prices the buck appreciated quite sharply against the gold and has practically reached the bottom boundary of a medium ascending channel. From daily perspective it seems that bears are going to try to drag the pair to the 61.8% Fibonacci retracement level at 1,278.96. On hourly chart such scenario is supported by the 200-hour SMA, which is now located above the current market price. However, in order to reach that target the rate has to pass through a combined support set up by the above channel’s boundary and the weekly S1. Although the average market sentiment is 61% bullish, it is unlikely that this support will manage to turn around the exchange rate (unless some unexpected fundamental event will occur).

During previous trading session, the Greenback continued to strengthen against the Yen, fluctuating in two minor ascending channels. At the moment, the turnaround of the rate seems unlikely, as the southern side is reliably secured by a combination of the 55- and 100-hour SMAs in conjunction with the weekly PP at 112.13. In contrast, the closest resistance level except for the 200-hour SMA is located only near the 112.57 and is formed by the weekly R1 and the upper boundary of one of the above patterns. In larger perspective there is a need to take into account that the pair is approaching the upper boundary of a dominant falling wedge pattern, which means that another rebound most probably is going to happen in the nearest future.

Although inflation report matched with forecasts and Gov Carney again admitted possibility of interest rate hike, the Pound lost almost 100 points against the Dollar just in couple of hours. Such keen reaction shows that the main investors’ concern is related to success of the Brexit talks. From technical perspective, the cable passed through the 200-hour SMA and now is facing to other support barriers on its way up until the 38.2% Fibonacci retracement level at 1.3145. In this sense, the pair is expected to continue to slip to the bottom. However, there is a need to take into account that after such sharp falls traders usually tend to restore lost positions, which means that an area near 1.326 might become a target once again (as long as market sentiment remains predominantly bullish)