Sample Category Title

EUR/USD continues with its losing ways in the Friday session. Currently, the pair is trading at 1.1353, down 0.19% on the day. On the release front, the sole eurozone indicator is German GfK Consumer Climate, which remained steady at 10.6 points. This edged above the forecast of 10.5 points. In the U.S, all eyes will be Advance GDP for the third quarter, which is expected to post a strong gain of 3.3%. We’ll also get a look at consumer confidence, with UoM Consumer Sentiment expected to drop to 98.9 points.

The euro continues to struggle this week, with the currency dropping 1.3%. On Friday, the euro fell to a low of 1.1352, its lowest level since mid-August. Unless the euro has a strong comeback on Friday, this week’s decline will be one of the sharpest this year. With global stock markets spiraling lower, risk appetite has dampened as investors flock to the U.S dollar at the expense of the euro and other currencies. A rash of geopolitical hotspots has weighed on investor sentiment, including the spike in Italian debt, the Brexit impasse and the U.S-China trade war.

As expected, the ECB maintained its main refinancing rate at a flat 0.00% at its policy meeting on Thursday. ECB President Mario Draghi acknowledged that the turmoil in global markets has raised the risks to the eurozone economy, but reiterated that the ECB remained on track to wind up its asset-purchase program in December. With the euro and European stock markets heading lower this week, Draghi tried to put a positive face on recent developments. He discussed the eurozone’s “broad-based” economic growth and said he was confident that the Italian government would reach an agreement with the European Commission, which has rejected Italy’s budget since it raises the country’s deficit. However, Drahgi acknowledged that the eurozone economy has softened, and also noted the risks from the global trade war and the volatile political climate in Italy.

Nervous wreck investors rattled by tech earnings

Risk aversion is alive and kicking on Friday, as weaker than expected tech earnings trigger the latest stampede and those still buying the dips once again get burned.

For once, the decline in Asia actually looks quite mild compared to what we're seeing in Europe and expecting on Wall Street. Tech companies have raised the bar so high in recent years that the numbers reported by Amazon and Alphabet just weren't quite spectacular enough, not at a time when investors are a nervous wreck and fleeing for safety at the first sign of danger.

Earnings season has more to run so there's plenty of time for companies to turn this funk around but as yet, they haven't given investors the boost they well and truly need. More than a quarter of the S&P 500 will report on the third quarter next week so there's plenty of opportunity to turn things round but sentiment has been well and truly dampened recently.

New vice Chair Clarida echos Powell comments on interest rates

Investors will also be paying close attention to what Fed policy makers will be saying in the coming weeks, ahead of the November meeting. Given the recent market turbulence and evidence of a slowing global economy, with the US even showing some points of weakness, there is potential for policy makers to scale back the number of rate hikes they're planning over the next couple of years.

Given that this current sell-off started with Fed Chairman Jay Powell claiming the neutral rate to be a long way away, before claiming they could go a little beyond it, it's safe to assume that a slight softening here could really help stabilise markets. US 10-year Treasuries have already come well off their highs but confidence in the markets has not recovered.

Data in focus as Fed goes into blackout period

New vice Chair Richard Clarida passed up the opportunity to do so on Thursday, insisting that more rate hikes are the right course of action. This will likely frustrate the very man that chose him to succeed Stanley Fischer, given that Trump has been a very harsh critic of the central bank's tightening. It will all go quiet now on that front as we enter into the blackout period ahead of the 8 November meeting but there is plenty of economic data that will likely drive people's opinions on what we can expect.

Today we have the advanced third quarter GDP number which people will be paying very close attention to. Trump has regularly lauded the work of his administration after the economy grew at more than 4% in the previous quarter. We're not expecting a repeat of this but a very respectable 3.3% is on the cards. There has been much talk of the softening in the housing data recently, while retail sales have also come off a little and the latest durable goods orders were also a little weaker. This could be a temporary slowdown or the result of higher interest rates and the fading benefit of tax reforms on consumers, perhaps the GDP data will shed further light

ECB easing optimism amid Italy budget risk

At yesterday's MPC, ECB President Mario Draghi maintained the policy unchanged and the end of the QE program by year-end, as expected. A rise in the key rate is not expected before next autumn.

Mario Draghi managed to cool down optimism, downplaying the Eurozone growth and inflation outlook, which ultimately helped the single currency to gain ground against the greenback, which managed to trade above 1.14. However the trend was short-lived, as the question relating to the Italian budget situation and its impact on the ECB normalization path came out. By the end of the day, the EUR lost its gain, trading at -0.15% against the buck.

Accordingly, we expect the Italian budget issue to remain limited. For now, the ECB is not expected to implement a more restrictive monetary policy. The only driver of this decision would be a rise in inflation, which will surely happen in spite of increasing wage growth.

EUR/USD is expected to weaken ahead of US 3Q GDP and economic sentiment data. Approaching the 1.1355 range.

Rand under pressure as growth outlook lowered

The appointment of Tito Mboweni, former SARB Governor two weeks ago was a welcome message for investors. However key challenges remain. Although his rapid role taking, Tito Mboweni struggled convincing investors during the mini budget meeting on Wednesday as the outlook appeared gloomy.

Indeed, despite an easing in consumer and producer prices (CPI and PPI m/m +0.50%), largely driven by a weaker rand and oil prices, the South African economy is expected to grow at a pace of 0.70%, primarily due to a recession phase in H1. Additionally, South African budget is expected to outreach prior 3.6% budget deficit by 0.40% in 2018 and current South African debt estimated at 50% of GDP will be growing by 10% in the coming 6 years.

Accordingly, mounting worries relating to the sovereign-rating downgrade is expected to push the ZAR downward, which ultimately should accelerate inflation. In this scenario, the SARB, which is having its next MPC between the 20-22. November 2018 will have to raise its key rate in order to provide a positive view to credit rating agencies, in order to avoid a junk status.

USD/ZAR is expected to strengthen, approaching the 14.70 range.

WTI oil holds in red on Friday and signaling that bears are returning to play after recovery attempts in past two days were repeatedly rejected after failing to sustain probes above strong 200SMA barrier ($67.46).

Rising concerns about global oversupply, despite the US sanctions on Iran which start at the beginning of November, keep oil prices under pressure.

WTI contract is on track for the third straight strong bearish weekly close, which adds to negative outlook, also supported by daily techs in firm bearish setup.

Bears eye target at $64.43 (16 Aug low), violation of which would expose another strong support at $63.66 (top of ascending thick weekly cloud).

Res: 67.02, 67.46, 68.73, 69.19
Sup: 65.73, 64.84, 64.43, 63.66

Notes/Observations

• Reminder: Clocks go back in Europe this weekend
• Highlights for upcoming session are the US advance Q3 GDP release and the outcome of S&P's sovereign ratings review for Italy
• S&P expected to lower the outlook on Italy to negative from stable but keep the BBB rating unchanged
• Dialogue between the Italian government and EU Commission on 2019 budget seen key for Euro and BTP price direction
• Chinese officials out in force stating they would not engage in competitive devaluation (Note: CNY fixing the weakest sine early 2017)

Asia:

• China Premier Li at the bilateral summit with Japan reiterated that China would not engage in competitive devaluation of yuan (CNY) currency. Did not no wish for competitive devaluation of yuan and reiterated pledge to keep yuan currency relatively stable
• Some at the Bank of Japan (BoJ) officials are said not to want 'sharp' 10-year yield moves. Some at the central bank said to see 10-year JGB yield limit higher than 0.20% (Note: In July BoJ Gov Kuroda stated that he saw the yield moving double the current tolerance band of +/- 10bps under new flexibility of Yield Control)

Europe:

• ECB said to be studying distributing large Public Sector Purchase Program (PSPP) reinvestments over a longer period from next year onward. ECB said to be considering giving itself extra room when rolling over its holdings of government debt next year to ensure it always finds bonds to buy when the old ones mature. Extending the period of time for reinvestments would aim to help smooth the reinvestment flow

Americas:

• Fed's Mester (hawk, FOMC voter): Nearing end of extraordinary policy, close to 'normal'; reiterated expects further gradual US rate hikes; no compelling reason to drop interest rate target range
• Fed Vice Chair Clarida: Some further rate hikes were warranted; Possible trend growth had shifted higher and structural unemployment moved lower

Energy:

• IEA chief Birol stated that OPEC should increase production at its next meeting to comfort a tightening market (Note: next semi-annual OPEC meeting in Vienna is scheduled for Dec 6th)

Macro

• (DE) Germany: GfK consumer confidence held steady at the headline number steady at 10.6 but the breakdown for October showed price expectations weakening further, and business expectations dropping sharply. Income expectations also dipped, but the willingness to buy actually bounced back. The willingness to save also dropped markedly in October, with negative interest rates impacting at the consumer level adding to the view that there is no place for German consumers to direct their savings.
• (IT) Italy: Yesterday ECB's Draghi repeated in the introductory statement that the broad based expansion called for rebuilding fiscal buffers, while stressing that "this is particularly important in countries where government debt is high and for which full adherence to the Stability and Growth Pact is critical for safeguarding sound fiscal positions". Asked directly on Italy, Draghi highlighted that the latest bank lending survey showed a tightening of lending conditions in Italy. So far though spillovers from Italy to other countries are limited, so it doesn't seem as though the ECB is considering any intervention.
• (EU) ECB: The ECB professional forecasters survey showed that growth forecasts are being revised down. Inflation forecasts of 1.7% were unchanged through the 2018-2020 period, with the long term forecast left unchanged at 1.9%. But growth forecasts for this year and next, were revised lower to 2.0% and 1.8% respectively from 2.2% and 1.9%. There could be some sort of fresh funding program amid concerns that TLTRO funds maturing in 2020 will already start to cast a shadow on funding demands as the ECB scales back.
• (EU) ECB: The fact that the ECB has not definitively suggested that the phasing out of QE will happen, leaves a lot of room to manoeuver if things turn out to be worse than expected. By stressing that the ECB is ready to review all measures if necessary it is clear confirmation that net asset purchases can be revived and are now part of the regular toolkit.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -1.5% at 349.9, FTSE -1.6% at 6897, DAX -1.8% at 11101, CAC-40 -2.0% at 4930, IBEX-35 -1.3% at 8668, FTSE MIB -1.7% at 18505, SMI -1.0% at 8620, S&P 500 Futures -1.0%]
• Market Focal Points/Key Themes: European Indices trade lower across the board led by weaker Tech sector after disappointing results after close from Amazon and Google, which led to further selling especially in Tech names in Asia over night and in Europe. The French CAC underperforms after a host of index members trade sharply lower. Valeo leads the decliners down over 15% after missing Revenues and cutting their outlook. Total trades lower after results; Faurecia falls after completing the acquisition of Clarion; Groupe SEB falls after earnings. Elsewhere Electrolux trades lower after lowering their outlook while Chemical giant BASF falls after cutting their EBIT outlook. Lafarge Holcim bucks the trend after raising its Revenue outlook, IAG also rises on earnings. Looking ahead notable earners include AON, Phillips 66, Colgate Palmolive, Goodyear and Ryder.

Equities

• Consumer discretionary: International Consolidated Airlines [IAG.UK] +2% (earnings), Electrolux [ELUXB.SE] -7.5% (earnings, outlook cut), Groupe SEB [SK.FR] -9% (earnings; rises Rev outlook)
• Energy: Total [FP.FR] -2.5% (earnings; raises production outlook), Neste Oil Oyj [NESTE.FI] +10% (earnings)
• Financials: Royal Bank of Scotland [RBS.UK] -5% (earnings), Banco de Sabadell [SAB.ES] +6.5% (earnings)
• Industrials: BASF AG [BAS.DE] -3.0% (earnings; outlook cut), Saint-Gobain [SGO.FR] +1.7% (earnings), DSV [DSV.DK] +1% (earnings; share buyback; adjusts outlook), Ferrovial S.A. [FER.ES] -1.5% (reports Heathrow airport financial statement & statistics), Valeo [FR.FR] -20% (earnings; cuts Rev outlook), Faurecia [EO.FR] -7% (acquisition of Japan's Clarion), Outotec [OTE1V.FI] -31% (warns of possible added costs)
• Materials: LafargeHolcim Ltd [LHN.CH] +3% (earnings; adjusts outlook), Glencore [GLEN.UK] -1.7% (trading update)

Speakers

• ECB Survey of Professional Forecasters (SPF) maintained its inflation forecast at 1.7% for the horizon period (2018-20) and euro zone long term inflation expectations (2022) at 1.9%. It cut the growth outlook for both 2018 and 2019 to 2.2% and 1.9% respectively
• EU's Moscovici reiterated view that Italy's deviation from EU rules was unprecedented; having constructive yet firm dialogue regarding the budget situation. European economy was not in crisis and saw no contagion from the Italian situation at this time
• Italy Govt said to consider a fund to support troubled banks. Italian banks asked to provide updates on state bond portfolios
• Norway Central Bank (Norges) Gov Olsen reiterated view of seeing gradual interest rate hikes; outlook on domestic economy was good. Inflation was near target and higher employment would boost wage growth
• Turkey President Erdogan: Speculative attack upon the country has been put under control; cash crunch was an issue and asks for patience to resolve
• Indonesia Central Bank Deputy Gov Waluyo: To maintain its tight monetary policy stance
• Taiwan Central Bank Dep Gov Yen: Low interest rate might twist financial markets
• China PBoC Vice Gov reiterated stance that would not engage in competitive currency devaluation or use CNY currency (Yuan) to cope with trade frictions. Risks from trade frictions on domestic FX market were largely under control. Reiterated that China had sound fundamentals and ample FX reserves to keep currency stable. Recent CNY currency decline reflected market supply and demand as well as global market volatility. Would take necessary and targeted measures to address those who short the CNY currency (Yuan)

Currencies/ Fixed Income

• USD was nearing 3-month highs against the major pairs ahead of the key Q3 GDP data.
• EUR/USD staying below the 1.14 area as the Italian budget drama remained the key focus. S&P rating decision on Italian debt was seen as a non-event with real focus as dealers noted the dialogue between the Italian government and EU Commission to be more important.
• GBP/USD little changed at 1.2820 area as the Brexit impasse continued as no plans were likely to be put forward from UK side before Monday's budget as members within may's Cabinet bicker on the approach to negotiations.
• Weakness in the CNY currency (Yuan) fixing seemed to weigh upon other currencies in the region (AUD, NZD, SGD). China fixed the USD/CNY rate above 6.95 for first time since early Jan 2017. Chinese official out in force declaring that they would not engage in competitive devaluation

Economic data

• (DE) Germany Nov GfK Consumer Confidence: 10.6 v 10.5e
• (DK) Denmark Sept Retail Sales M/M: 0.5% v 0.1%e; Y/Y: 0.7% v 3.2% prior
• (FR) France Oct Consumer Confidence: 95 v 95e
• (FR) France Sept PPI M/M: 0.3% v 0.4% prior; Y/Y: 3.6% v 3.7% prior
• (CN) Weekly Shanghai copper inventories (SHFE): 148.9K v 140.8K tons prior
• (SE) Sweden Sept Trade Balance (SEK): +1.4B v -7.7B prior
• (SE) Sweden Sept Retail Sales M/M: 0.5% v 0.4%e; Y/Y: 2.1% v 1.7%e
• (IT) Italy Sept Hourly Wages M/M: 0.0% v 0.9% prior; Y/Y: 1.9% v 2.0% prior

Fixed Income Issuance

• (IN) India sold total INR110B vs. INR110B indicated in 2023, 2032, 2035 and 2045 bonds
• (IT) Italy Debt Agency (Tesoro) sold €996M vs. €0.5-1.0B indicated range in 1.30% May 2028 I/L Bonds (BTPei); Avg Yield: 2.34% v 1.55% prior; Bid-to-cover: 1.38x v 1.64x prior
• (IT) Italy Debt Agency (Tesoro) sold €3.0B vs. €2.5-3.0B indicated range in new Zero Coupon Nov 2020 CTZ ; Avg Yield: 1.626% v 0.715% prior; Bid-to-cover: 1.82x v 2.10x prior

Looking Ahead

• 05:30 (PL) Poland to sell Bonds
• 05:30 (ZA) South Africa to sell ZAR600M in I/ L 2025, 2033 and 2050 bonds
• 06:00 (UK) DMO to sell €5.0B in 1-month, 3-month and 6-month bills (£0.5, £3.0B and £1.5B respectively)
• 06:30 (RU) Russia Central Bank (CBR) Interest Rate Decision: Expected to leave Key Rate unchanged at 7.50% - 06:30 (IS) Iceland to sell 6-month Bills
• 06:45 (US) Daily Libor Fixing - 07:00 (BR) Brazil Sept PPI Manufacturing M/M: No est v 0.8% prior; Y/Y: No est v 15.1% prior
• 07:00 (BR) Brazil Oct FGV Construction Costs M/M: 0.4%e v 0.2% prior
• 07:30 (IN) India Weekly Forex Reserves w/e Oct 19th: No est v $394.5B prior
• 08:00 (IN) India announces upcoming bill issuance (held on Wed)
• 08:00 (ES) Spain Debt Agency (Tesoro) announces upcoming bond issuance
• 08:05 (UK) Baltic Dry Bulk Index
• 08:30 (US) Q3 Advance GDP Annualized Q/Q: 3.4%e v 4.2% prior; Personal Consumption: 3.3%e v 3.8% prior
• 08:30 (US) Q3 Advance GDP Price Index: 2.1%e v 3.0% prior; Core PCE Q/Q: 1.7%e v 2.1% prior
• 09:00 (MX) Mexico Sept Trade Balance: -$1.9Be v -$2.6B prior
• 09:00 (BR) Brazil Sept Total Federal Debt (BRL): No est v 3.786T prior
• 09:30 (BR) Brazil Sept Total Outstanding Loans (BRL): No est v 3.16T prior; M/M: No est v 1.0% prior, Personal Loan Default Rate: No est v 5.0% prior
• 10:00 (US) Oct Final University of Michigan Confidence: 99.0e v 99.0 prelim
• 11:00 (EU) potential sovereign ratings after EU close (Germany, United Kingdom, Italy Sovereign Debt to be rated by S&P; France and Luxembourg Sovereign Debt to Be Rated by Moody's; United Kingdom, Netherlands and Ukraine Sovereign Debt to be rated by Fitch
• 11:30 (US) Treasury to sell 8-Week Bills
• 13:00 (US) Weekly Baker Hughes Rig Count data
• 13:30 (BR) Brazil Sept Central Govt Budget Balance (BRL): -24.8Be v -19.7B prior
• 15:00 (CO) Colombia Central Bank Interest Rate Decision: Expected to leave Overnight Lending Rate unchanged at 4.25%
• 21:30 (CN) China Sept Industrial Profits Y/Y: No est v 9.2% prior

Weekend:

Sunday:

• Brazil Presidential vote (2nd round)
• German regional election in Hesse

Downside risks dominated the EUR/JPY currency pair on Thursday. The common European currency ended Thursday's session with about 58 points declined against the Japanese Yen.

The exchange rate is trading near the bottom boundary of a falling wedge pattern and the weekly support level at127.43 during the middle of today's session.

If this support line as mentioned above holds, the currency exchange rate will target the 50-hour simple moving average at the 128.00 mark during the following trading session.

The Australian Dollar has continued to trade in a descending channel against the US Dollar. The currency pair tested the lower boundary of the channel pattern at 0.7020 during the Asian session on Friday.

Everything being equal, it is likely that the downside sentiment will continue during the following trading session. The potential target for the exchange rate will be near the monthly S2 at 0.6980.

However, the currency exchange rate could reverse from current price level and aim at a resistance cluster formed by the 50– and 100-hour SMAs near the 0.7079 regions within this session.

Upside momentum dominated the US Dollar against the Canadian Dollar on Thursday/ the currency pair breached the upper boundary of a medium-term descending channel pattern at 1.3120 during the morning hours of Friday's trading session.

Given that a breakout had occurred, it is likely that bullish traders could drive the currency exchange rate towards the weekly resistance level at 1.3185 before the end of today's session.

Meanwhile, the US macroeconomic data releases scheduled at 12:30 GMT could play a significant roll in the positioning of the price today.

The New Zealand Dollar has depreciated about 80 base points against the US Dollar since Thursday session. The currency pair tested the lower boundary of a descending channel at 0.6476 during the Asian session on Friday.

Given that the NZD/USD currency pair is closer to the bottom border of the channel pattern, a breakout could be expected within this session.

If this breakout occurs, the currency exchange rate might aim at a support cluster formed by the combination of the weekly and the monthly pivot points at 0.6410 during the coming hours.

During Thursday's trading session, the yellow metal passed through the support levels of the 55-hour and the 100-hour simple moving average to end the trading day at 1,231.24 mark. On Friday morning, the gold was trading near the 55-hour simple moving average at the 1,233.46 mark.

In regards to the near-term future, most likely, the gold will trade sideways to stay at the 1,234.00 level. The 55-hour SMA should support the gold during the day.

However, the US Dollar could appreciate against the yellow metal during today's US Advance GDP q/q data release at 12:30 GMT. The fundamental news could force the gold to pass the SMAs to trade at the 1,228.00 level.