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Earnings weigh on sentiment

We're facing another day of negative stock markets on Thursday, as earnings season gets off to the tough start that many anticipated.

Netflix became the latest company on Thursday to face an investor backlash as subscribers rose at a slower rate than expected and significantly disappointed in its home market. While the company attributed this to price hikes, the increasing competition in the area is a major cause for concern for investors who have fled in numbers as the first excuse, it seems.

There's plenty more companies reporting second quarter earnings today, including Microsoft and Morgan Stanley and it's only going to get busier over the coming weeks. The bar has been set low for this earnings season but it could still be a rough ride.

Is sterling bottoming out?

The pound is spending a second day in the green as it recovers from fresh two-year lows suffered earlier in the week. The gains this morning came ahead of the open, front-running the UK data in much the same way that we've seen over the last couple of days. Once again it seems the move was ahead of the curve, with retail sales in June easily exceeding expectations, a month after wage growth was also higher than the consensus estimate, so perhaps not altogether surprising.

The sell-offs are still struggling to gather any real momentum, despite hitting multi-year lows which suggests the trend has significantly weakened. While this may be a sign of bottoming, Brexit headlines keep weighing on the currency and in such a news-driven market, it would be silly to dismiss the prospect of further declines.

GBPUSD Daily Chart

Gold remains bullish despite consolidation

Gold is paring Wednesday's gains early in the session and remains in consolidation mode, despite once again finding itself towards the upper end of its range. Softness in the dollar, driven primarily by a more accommodative Fed and in part by the prospects of the US actively devaluing the greenback, has provided a dovish case for the yellow metal. It's been consolidating recently following a very strong run higher but continues to look bullish as it once again pressures the highs.

Gold Daily Chart

Possible consolidation in oil

Oil has been looking a little toppy recently, following its strong rally off its June lows, with the result being that traders are starting to jump on bearish headlines. Reports of the US and Iran becoming more open to negotiations are positive, albeit not for crude prices, but they may also be a little premature because both sides are still attaching conditions that the other finds unacceptable. Until that changes, it's hard to see anything substantial changing and in fact, the situation could get much worse before it gets better.

A break below $56 and $62 in WTI and Brent, respectively, could bring further downside pressure for oil prices, although we are already running into support around these levels so it's highly possible that instead we consolidate in this range.

Brent Daily Chart

Bitcoin struggling to break back above $10,000

Bitcoin has stabilized after a rough week in which it repeatedly became a hot topic in various Congressional hearings as well as the latest victim of a Trump tweet attack. It's found temporary support around $9,000 but having broken below $10,000 earlier in the week and failed to break back above here over the last 24 hours, further declines could be on the cards. Although, as ever, bitcoin is very unpredictable in its nature and another rally back towards $13,000 wouldn't surprise anyone. Being in the news has been its friend in the past, maybe it will be again despite this temporary blip.

The British Pound reversed from a resistance cluster formed by the combination of the weekly and the monthly PPs and the 50-hour simple moving average at 135.72 during last week's trading sessions.

Currently, the exchange rate is testing the monthly and the weekly S2 at 133.96. If the support level holds, the currency pair will make a pullback during the following trading sessions.

However, if the currency exchange rate breaches the support lines, bearish traders could continue their dominance in the market in the nearest future.

The AUD/JPY has been trading up since the middle of June after the pair bounced off the lower boundary of an ascending channel at 74.00 on June 17. The exchange rate reversed from the weekly R1 at 76.07 on July 16.

Technical indicators flash strong sell signals on the weekly time-frame chart. Therefore, it is likely that the Aussie will edge lower during next week's trading sessions.

However, the currency exchange rate could reverse north from a support cluster formed by the weekly and the monthly pivot points and the 200-hour simple moving average at 75.30.

At the end of June, the USD/DKK exchange rate reversed north from the psychological level at 6.5400. Currently, the rate is testing the resistance level formed by the weekly and monthly R1s at 6.6589.

Given, that the currency pair is supported by the 55-, 100– and 200-hour SMAs, currently located in the 6.6387/6.6460 range, it is likely, that some upside potential could prevail in the market. The pair could target the resistance level located at the 6.7114 mark.

It is unlikely, that the rate could tumble lower than the 6.4800/6.5400 area due to the support of the lower boundary of the long-term ascending

The USD/SEK currency pair has been trading upwards since the end of June when it reversed north from the lower boundary of the long-term ascending channel located circa 9.2530.

From a theoretical point of view, it is expected, that the exchange rate could maintain its growth. In this case, the rate would have to surpass the resistance level formed by the monthly R1 at the 9.4883.

Also, note, that the pair is pressured by the 55-, 100– and 200-hour SMAs, currently located in the 9.3745/9.4088 range. Thus, the rate could make a reversal south to re-test the lower channel line. If the given channel does not hold, it is likely, that the pair could decline to the 9.2500 level.

Notes/Observations

• Risk aversion sentiment finds fresh legs on earnings and trade concerns
• Signs of a slowdown in global growth were reinforced by the latest data highlighting weakness in Asian economies; BOK and Indonesia ease policy
• EU's Barnier gives signs of being open to Irish backstop compromise

Asia:

• Japan Jun Trade Balance registered a larger-than-expected surplus as exports saw its 7th consecutive (¥589.5B vs ¥403.5Be)
• Bank of Korea (BOK) cuts 7-Day Repo Rate by 25bps to 1.50% (not expected); to maintain an accommodative stance; moves shows sense of urgency about pressures facing the economy outweighed financial stability concerns
• Australia Jun Employment Change saw its 9th straight month of job growth (+0.5K v +9.0Ke); Unemployment Rate: 5.2% v 5.2%e

Europe/Mideast:

• UK Office for Budget Responsibility (OBR) expected to say the UK to fall into recession in 2020 if there is a no-deal Brexit
• House of Lords passed new amendment to prevent a PM from suspending parliament; bill now goes back to House of Commons for vote
• UK PM candidate Johnson: whole Brexit withdrawal agreement was effectively defunct; Reiterated view that Brexit backstop for Ireland won't work

Americas:

• Fed Beige Book: Economic activity continued to expand at a modest pace overall from mid-May through early July
• Fitch affirmed Canada sovereign rating at AAA; outlook Stable
• US-China trade talks reportedly had stalled while Trump administration figures out way forward on Huawei restrictions. There had been no face-to-face meetings and none have been scheduled since Trump-Xi meeting

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -0.38% at 386.20, FTSE -0.49% at 7,498.70, DAX -0.87% at 12,234.14, CAC-40 -0.54% at 5,541.72, IBEX-35 -0.87% at 9,203.15, FTSE MIB -0.24% at 22,026.50, SMI +0.59% at 10,000.50, S&P 500 Futures -0.15%]
• Market Focal Points/Key Themes: Equities European Indices trade mostly lower following mixed Indices in Asia and lower US Index futures as earnings disappoint. Netflix shares trade over 10% lower in the premarket after weak subscriber growth, while the Swiss SMI outperforms on strength in Novartis. On the corporate front share of SAP trades sharply lower after missing on the top and bottom line on slower cloud orders; Novartis trades higher after an EPS and Rev beat, while Volvo trades lower as order intake fell again despite stronger earnings. Asos also declines sharply following their update and reduced full year guidance. Other notable gainers include Easyjet, BE Group and Minds & Machines, while Bobst Group, Wartsila, Sligr Foods, Industrade are some of the notable decliners on earnings. On the M&A front, Grandvision shares rise sharply after majority holder HAL Trust confirmed it was in talks with LuxotticaEssilor regarding sale of stake for €28/shr; Ei Group gains almost 40% on a cash offer from Stonegate Pub Co worth £1.27B. Looking ahead notable earners include Morgan Stanley, Danaher, Honeywell, United Health and Philip Morris among others.
• Consumer discretionary: Asos [ASC.UK] -11.5% (trading update; profit warning), Richemont [CFR.CH] -1% (earnings; Swiss trade balance), Givaudan [GIVN.CH] -3% (earnings), Ei Group [ETI.UK] +39% (takeover offer), EasyJet [EZJ.UK] +3.5% (earnings), Sligro Food Group [SLIGR.NL] -5% (earnings)
• Financials: Intrum [IJ.SE] +9% (earnings)
• Healthcare: Novartis [NOVN.CH] +3% (earnings)
• Industrials: Volvo [VOLVA.SE] -1.5% (earnings), Georg Fischer [FI.N.CH] -2.5% (earnings), Indutrade [INDT.SE] -12% (earnings)
• Technology: SAP [SAP.DE] -6.5% (earnings), Minds + Machines [MMX.UK] +5% (trading update)

Speakers

• ECB's Villeroy (France): G7 was unanimous in regards to its caution on Facebook's Libra currency. Libra could challenge financial stability. Global economic slowdown is 'undeniable'
• EU's Moscovici: Need an international solution to the digital tax; have had positive discussions on topic. Stated ECB's Draghi had done what he had to but needed to think what happens if 'more than a slowdown'
• BoE Liability and Credit Conditions survey: Q2 demand for mortgages increased significantly but expected to remain unchanged in Q3. Demand for credit cards lending decline in Q2 but expected to increase in Q3
• EU Brexit negotiator Barnier: No easy solution to the Irish border issue; ready to work on alternative arrangements
• Ireland PM Varadkar: No deal Brexit can be avoided; looking forward to working with the next UK PM. He added that the UK could ask for Brexit extension
• UK Office of Budget Responsibility (OBR): No-deal Brexit could push UK economy into recession. No deal Brexit would increase Public Debt by equivalent of 12% of GDP by 2023/24. Government borrowing would be around £30B a year higher by 2020/21
• UK Cabinet Office Minister Lidington (de facto Dep PM) said to have noted that EU suggested that UK should put Brexit on ice for 5 years
• Indonesia Central Bank Gov Warjiyo pre-rate decision commentary noted that several central banks have pursued dovish monetary policies. Saw negative growth in exports but noted Q2 GDP growth was seen at the same pace as Q1. To take measure to push the growth momentum; work with other authorities to lift growth
• Indonesia Central Bank (BI) Policy Statement: noted that the decision to cut rates was taken based on low inflation forecast and to support economic growth momentum. Was open to accommodative monetary policy and saw room for monetary adjustment
• China Foreign Ministry spokesperson Lu Kang reiterated stance that governance of Hong Kong was a purely domestic matter
• Japan banking Association chief: Moving further into negative rate territory will weaken the financial intermediaries more (**Note: next BOJ decision on July 31st)

Currencies/Fixed Income

• Risk aversion sentiment finds fresh legs on earnings and trade concerns. The past 24 hours saw BOK and Indonesia central banks joined the easing club with respective rate cuts; more analysts expect ECB to soon follow
• USD was slightly softer in the session against more pairs but well contained within recent ranges.
• EUR/USD higher by 0.1% at 1.1240 area
• GBP was firmer on better retail sales data but comments from EU's Barnier on the Irish backstop seemed to send some shorts covering. As he noted the EU could work on alternative arrangements
• USD/JPY was lower on risk-aversion flows with pair at 107.75 just ahead of the NY morning.
• AUD firmer on speculation the RBA would hold off on a third rate cut in August after the latest jobs data showed resilience

Economic Data

• (NL) Netherlands Jun Unemployment Rate3.4% v 3.3% prior
• (CH) Swiss Jun Trade Balance: 4.1B v 3.4B prior; Real Exports M/M: -0.1% v -0.4% prior; Real Imports M/M: 1.4 v 0.8% prior; Swiss Watch Exports Y/Y: -10.7% v +11.6% prior
• (ID) Indonesia Central Bank (BI) cut the 7-Day Reverse Repo by 25bps to 5.75% (as expected)
• (PL) Poland Jun Sold Industrial Output M/M: -5.9% v -1.3%e; Y/Y: -2.7% v +2.0%e
• (PL) Poland Jun PPI M/M: -0.4% v -0.5%e; Y/Y: 0.6% v 0.7%e
• (UK) Jun Retail Sales (ex-auto/fuel) M/M: +0.9% v -0.2%e; Y/Y: 3.6% v 2.6%e
• (UK) Jun Retail Sales (includes auto/fuel) M/M: +1.0% v -0.3%e; Y/Y: 3.8% v 2.6%e
• (HK) Hong Kong Jun Unemployment Rate: 2.8% v 2.8%e (matched lowest level since Jan 1998)

Fixed Income Issuance

• (ES) Spain Debt Agency (Tesoro) sold total €3.97BB vs. €3.5-4.5B indicated range in 2021, 2024 and 2030 bonds
• Sold €1.29B in 0.05% Oct 2021 SPGB; Avg yield: -0.467% (record low) v -0.408% prior, Bid-to-cover: 1.67x v 1.88x prior (Jun 20th 2019 with yield at record low)
• Sold €1.22B in 0.25% July 2024 SPGB bond; Avg yield: -0.205% (record low) v -0.182% prior; Bid-to-cover: 1.72x v 2.11x prior (Jun 20th 2019 with yield at record low)
• Sold €1.46B in 1.95% July 2030 SPGB; Avg Yield: 0.461% v 1.580% prior, bid-to-cover: 1.65x v 1.92x prior
• (FR) France Debt Agency (AFT) sold total €B vs. €7.25-8.75B indicated range in 2022 and 2025 bonds (3 tranches)
• Sold €2.748B in 0.00% Feb 2022 Oat; Avg Yield: -0.69% (record low) v -0.65% prior; Bid-to-cover: 3.15x v 2.63x prior
• Sold €3.220B in 2.25% Oct 2022 Oat; Avg Yield -0.69% (record low) v -0.29% prior; Bid-to-cover: 2.35x v 2.95x prior
• Sold €2.777B in 0.0% Mar 2025 Oat; Avg Yield: -0.44% (record low) v -0.38% prior; Bid-to-cover: 2.47x v 2.54x prior
• (IE) Ireland Debt Agency (NTMA) sold €500M vs. €500M indicated in 12-month bills; Avg yield: % v -0.470% prior; Bid-to-cover: x v 3.67x prior

Looking Ahead

• 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds (3 tranches)
• 05:50 France Debt Agency (AFT) to sell €1.0-1.5B in 2028, 2029 and 2036 inflation-linked bonds (Oatei)
• 07:00 (UR) Ukraine Central Bank (NBU) Interest Rate Decision: expected to cut Key Rate by 50bps to 17.00%
• 07:00 (BR) Brazil July IGP-M Inflation (2nd Preview): 0.5%e v 0.8% prior
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:30 (US) July Philadelphia Fed Business Outlook: 5.0e v 0.3 prior
• 08:30 (US) Initial Jobless Claims: 216Ke v 209K prior; Continuing Claims: 1.70Me v 1.723M prior
• 08:30 (CA) Canada Jun Teranet/National Bank HPI M/M: No est v 0.5% prior; Y/Y: No est v 0.7% prior; House Price Index (HPI): No est v 223.26 prior
• 08:30 (CA) Canada Jun ADP Payroll Estimates: No est v -16.0K prior
• 09:00 (RU) Russia Gold and Forex Reserve w/e July 12th: No est v $518.3B prior
• 09:00 (BR) Brazil July CNI Industrial Confidence: No est v 56.9 prior
• 09:00 (ZA) South Africa Central Bank (SARB) Interest Rate Decision: Expected to cut Interest Rate by 25bps to 6.50%
• 09:00 (ZA) South Africa BER inflation Expectations Survey
• 09:30 (US) Fed's Bostic (dove, non-voter) in TN
• 10:00 (US) Jun Leading Index: 0.1%e v 0.0% prior
• 10:00 (ES) ECB's de Cos (Spain)
• 10:30 (US) Weekly EIA Natural Gas Inventories
• 11:00 (US) treasury announcement for upcoming 2-year, 5-year and 7-year note issuance
• 11:30 (US) Treasury to sell 4-Week and 8-Week Bills
• 13:00 (US) Treasury to sell 10-Year TIPS
• 14:15 (US) Fed's Williams (moderate, voter)

Cable accelerated higher on Thursday, extending recovery off new 27-month low at 1.2382, boosted by stronger than expected UK retail sales data.

Retail sales were up 1% in June, beating forecast of -0.3%, while annualized figure was up 3.8% from June last year vs 2.6% forecast and downward-revised May release at 2.2%.

Upbeat retail sales may boost hopes for lesser negative impact from fears of shrinking UK economy in the second quarter.

Strong data also impacted negative sentiment on no-deal Brexit, which remains pound’s key driver and maintains strong pressure.

Extended recovery faces headwinds from initial barriers at 1.25 zone (falling 10DMA / former low of 18 June), which marks pivotal barrier, along with 1.2535 (Fibo 38.2% of 1.2783/1.2382), with firm break here required to signal stronger correction.

Meanwhile, underlying bear-trend keeps in play risk of recovery stall and fresh weakness.

Res: 1.2492, 1.2505, 1.2535, 1.2576
Sup: 1.2425, 1.2396, 1.2382, 1.2354

The British pound has had an extremely lively European trading session against the US dollar, with the pair staging a strong recovery back towards the 1.2480 level. Better than expected UK retail sales data has helped boost sentiment, while cross-pair flows are also helping to boost the GBPUSD pair. Buyers may now test back towards the 1.2530 level if the rally continues to gather pace.

The GBPUSD pair is bullish while trading above the 1.2440 level, key resistance is located at the 1.2480 and 1.2530 levels.

If the GBPUSD pair fails around the 1.2480 level, key support is found at the 1.2440 and 1.2410 levels.

The euro continues to hold onto recent gains agains the US dollar, although the pair is struggling to hold above the 1.1240 resistance level. EURUSD bulls will need to move price above the 1.1248 level to change the weekly trading sentiment toward the pair. Overall, traders remain extremely cautious towards the EURUSD due the upcoming ECB policy meeting next week.

The EURUSD pair is only bearish while trading below the 1.1220 level, key support is found at the 1.1200 and 1.1185 levels.

If the EURUSD pair trades above the 1.1220 level, bulls could test back towards the 1.1248 and 1.1270 levels.

The EUR/JPY currency pair has continued to trade south in a descending channel pattern. The Euro has depreciated about 0.44% in value since yesterday's trading session.

The exchange rate was trading near the lower bound of a descending channel at 121.02 during the first part of Thursday's trading session.

Most likely, a breakout could occur through the lower boundary of the channel pattern within this session.

However, if the descending channel holds, a retracement towards a resistance level formed by the 200-hour SMA could be expected today.