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The US markets ended the day lower in a volatile trading day in Wall Street. The Dow Jones, S&P, and Nasdaq fell by 465, 53, and 85 points respectively as traders worried about trade, rising interest rates, and the ongoing debacle about Saudi Arabia. The declines accelerated after Treasury Secretary Steven Mnuchin announced that he would not participate in Saudi’s Future Investment Initiative summit. Investors and policymakers have pulled out of the conference following the disappearance of Jamal Khashoggi two weeks ago. As a result of the Wall Street losses, European futures point to a mixed open with the DAX rising by 24 points while Stoxx and CAC decline by 40 and 90 points.

Asian markets were mixed even as China released disappointing GDP numbers. In the third quarter, the economy expanded by 6.5%, which was lower than the 6.7% growth in the second quarter and the 6.6% traders were expecting. Furthermore, industrial production in September rose by an annual rate of 5.8%, which was lower than the expected 6.0%. This slowdown in growth was mostly organic and not attributed to trade because China’s exports to the US have continued to increase. On the upside, retail sales rose by 9.2%, which was higher than the 9.0% that traders were expecting. This was likely because of the week-long holiday which took place to commemorate the country’s founding.

The Japanese yen was little moved in the Asian session after the country released inflation data. The numbers from Japan’s Bureau of Statistics showed that the national CPI rose by an annualized rate of 1.2%, which was lower than the previous 1.3%. The national core CPI rose by 1.0%, which was in line with the consensus estimate. While Japan’s economy continues to improve, the country has been unable to stimulate inflation.

EUR/USD

Last week, the EUR/USD pair rose from 1.1430 and reached a weekly high of 1.1610 on Friday. On Monday, the pair fell slightly and resumed the upward momentum, ultimately reaching a high of 1.1620. After that, the pair started to fall and today, it reached a low of 1.1456. As the pair declined, it formed an inverted cup pattern on the hourly chart below. The double EMA shown below coupled by the MACD and the momentum indicator show that the downward momentum will likely continue. If it does, it will find support at the previous low of 1.1430.]

USD/JPY

The Japanese yen fell slightly against the USD after Japan’s CPI numbers were released. The pair moved from 111.94 to an intraday high of 112.43. This week, the pair has moved from a low of 111.62 and moved to a high of 112.72. On the hourly chart below, the Parabolic SAR indicator shows that the pair will likely continue moving higher. However, this could be a false forecast because the pair continues to trade in thin volumes.

GBP/USD

Last week, GBP/USD was among the best-performing pairs gaining from 1.2920 to a weekly high of 1.3257. This was a 2.6% gain and came about as hopes for a Brexit compromise increased. This week, most of the previous gains have been wiped away as the EU and UK talks hit a deadlock. In the Asian session, the pair was a little moved. With no major data from the UK and the US, the pair will likely continue with the path of little resistance and possibly continue to decline.

Rates: Peripheral bonds and US stocks sell-off, lifting core bonds

Core bonds benefited from their safe haven status yesterday with both EMU peripheral bonds and US stocks selling off. There is no compelling case to neither expect yesterday's hiccup to last, nor to see a strong risk rebound. We slightly favour the former scenario. The German 10-yr yield hits first key support around 0.41%.

Currencies: EUR/USD nears 1.1432 intermediate support

Yesterday, the dollar remained strong. The euro couldn't maintain initial resilience as the rift between the EU and Italy on the Italian budget was formally escalated. EUR/USD is near the 1.1432 support. A further rise in US yields and uncertainty on Italy might keep EUR/USD in the defensive for now

The Sunrise Headlines

• US equity markets lost ground yesterday with losses over 1%. Technology shares underperform. Asian markets trade mixed this morning with China strongly rebounding from earlier losses.
• The European Commission said in a letter to Italy's Finance Minister Tria that the country's 2019 budget draft is in serious breach of EU budget rules. The Commission asked to give some explanation by Monday.
• Chinese top financial officials have tried to shore up confidence in its tumbling stock market. Heads of China's central bank, securities watchdog and banking and insurance regulator promised measures to help ease financial pressure.
• Fed Governor Quarles said he favours a path of gradual rate hikes. He added that a tick-up in the economy's potential growth rate is possible without overheating, hinting that a slower hiking path could be more appropriate.
• Steve Mnuchin, US Treasury secretary, is the next political heavyweight to withdraw from the Future Investment Initiative conference in Saudi Arabia as international tensions rise over the disappearance of journalist Jamal Khashoggi.
• China's economic growth slowed to 1.6% Q/Q & 6.5% Y/Y in Q3. Retail sales (9.2% YoY) beat expectations in September, while industrial production (5.8% YoY) fell back more than expected showing the impact of US trade tensions.
• Today's eco calendar is extremely thin with no important data to be released. Bank of England Governor Carney speaks in New York, as do Federal Reserve's Bostic and Kaplan.

Currencies: EUR/USD Nears 1.1432 Intermediate Support

EUR/USD nears 1.1432 intermediate support

On Wednesday, the dollar got a shot in the arm as the minutes of the September Fed meeting indicated a continuation of gradual rate hikes. US interest rates jumped and so did the dollar. Yesterday, in Europe, the dollar rally temporarily took a breather as European equities held up rather well compared to other (Asian) markets. However, euro resilience could not be sustained. Riskoff gradually returned and there were ever more rumours that the EU would challenge the Italian budget proposal. This was formalised in a letter from the EU to the Italian government later in the session. US/German interest rate differentials remained near a record peak and the euro suffered. EUR/USD closed at 1.1453, near the intraday low. USD/JPY also declined in line with the global risk-off the finish the day at 112.21. Overnight, Asian equities join the correction from the US yesterday. China Q3 GDP was softer than expected (6.5% Y/Y) but September retail data suggest that domestic spending remained healthy. Chinese authorities this morning also indicated that they would take action to address liquidity issues and said that equity valuations in the country were low. This official support put a floor for Chinese equities this morning. The yuan held near the lowest level since early 2017 (6.94 area). EUR/USD trades near 1.1460. USD/JPY is holding up well despite the regional risk-off. Today, the US & EMU eco calendar is thin. US existing home sales are the exception to the rule. Global factors will probably drive USD trading. In case, the risk-off correction could slow, US yields and interest rate differentials might remain USD supportive. At the same time, uncertainty on Italy might remain a slightly negative for the euro. Over the previous days, EUR/USD drifted lower off the 1.1600/20 resistance area. A retest of the 1.1432 ST range bottom is very well possible now. A break would open the way to the 1.1301 August correction low. Yesterday, EUR/GBP trading held to a rather tight 0.8770/0.88 trading range. The UK currency was more or less immune to all kinds of Brexit noise in the wake of the EU summit. Even poor UK retail sales had only a limited impact. EUR/GBP gained some ground on the overall risk-off later. Today, the UK public finance data are probably no sterling mover. We expect more directionless trading as long as the Brexit stalemate persists

EUR/USD: dollar remains well bid. Euro suffers from Italy. Test of EUR/USD 1.1432 might be on the cards

Sentiment improves even as China GDP disappoints

European equity markets are poised for a more positive open on Friday, buoyed by the gradual improvement in Asian markets overnight following a shaky start.

Sentiment across the globe has remained cautious at best this week but all things considered, I think investors will be heading into the weekend somewhat relieved. If this time last week - when investors were weighing up the potential fallout of a couple of really bad days for the markets - you offered them a somewhat shaky week but one that ended roughly where it started, they would have snapped your hand off.

Chinese data over night threatened to sour things heading into the weekend, with growth in the third quarter slipping to 6.5% from 6.7% and missing expectations. And that was certainly looking the case early on but perhaps the better than expected retail sales and fixed asset investment numbers, as the government looks to support the faltering economy in the face of US tariffs, offset the GDP disappointment. Still, the economy faces some challenging quarters ahead as the full effects of the tariffs kick in.

Positive tones coming from Brussels as May offers another concession

Theresa May’s Brussels visit may not have been the complete waste of time it was looking even 24 hours ago, with leaders suddenly sounding more optimistic that a deal can be reached. It would appear that May’s transition extension proposal has sat better with Brussels than it inevitably will do in London, with some of the more staunch Brexiteers already voicing their disdain for such a move.

Still, these are the sacrifices that the PM is consistently being forced to make in order to progress talks and avoid a no deal Brexit, something some of her louder colleagues at home don’t have to worry about. With time running out though, I struggle to see how this really resolves the problem of the Northern Irish border and the backstop unless further concessions are made. The EU may now have a reputation for eleventh hour deals but as the deadline nears, traders are not going to bank on another and the nerves will start to creep in.

Italian borrowing costs his four and a half year high as budget talks begin with Brussels

As if Brexit isn’t enough of a headache, the EU has another fight on its hands as the populist coalition government in Italy attempts to circumvent the blocks budget rules in order to follow through on campaign promises that are, unsurprisingly, much easier to make than deliver on.

With discussions now underway and Italy having until Monday to respond to the European Commission’s concerns about its budget plans, both sides would be wise to not let this get heated. Brussels will want to avoid providing bait to the eurosceptics while the government will have one eye on the bond markets at all times, with Conte already in discussions with the ratings agencies in a desperate attempt to avoid a downgrade.

That would be catastrophic for the government’s plans and would likely trigger another spike in its borrowing costs, with the 10-year yield already at a four and a half year high and the spread over Germany at a five and a half year high.

General Trend:

• Asian equity markets pare losses
• Shanghai Composite trades between gains and losses in early trade, traders assess GDP data and market support measures
• Japan electronics/appliances seller Yamada Denki declines on profit warning
• China officials pledge to support non-state backed listed companies, limit risks related to share pledging
• China net exports subtract from Jan-Sept GDP growth
• PBoC continues to fix yuan weaker after escaping currency manipulator designation

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened -0.4%
• (NZ) New Zealand Sept Net Migration: 4.6K v 5.0K prior (lowest since 2014)
• (NZ) New Zealand Sept Credit Card Spending M/M: 0.8% v 2.6% prior; Y/Y: 7.8% v 7.7% prior

China/Hong Kong

• Shanghai Composite opened -1.1%, Hang Seng -1.1%
• (CN) China PBoC Gov Yi Gang: China equity market valuation at historically low level, recent market volatility caused by investor sentiment; supports local governments to support companies liquidity
• (CN) China Securities Regulator (CSRC) Chief Liu: China will support non-state backed listed companies
• (CN) China Banking and Insurance Regulatory Commission (CBIRC) Chairman Guo Shuqing: To push financial market back to 'normal path', volatility not in line with healthy status; reiterates systemic risks are currently under control
• (CN) China Vice Premier Liu He: China and US 'in touch'; China government pays 'high attention' to healthy stock market development - Xinhua
• (CN) China National Bureau of Stats (NBS) Official Mao: Notes extremely complex, severe domestic and economic situations; Economy is stable, helping reach full-year target, affirms 2018 GDP growth target of ~6.5%
• (CN) CHINA Q3 GDP Y/Y: 6.5% V 6.6%E (slowest growth since Q1 2009)
• (CN) CHINA SEPT INDUSTRIAL PRODUCTION Y/Y: 5.8% V 6.0%E (slowest growth since 2016)
• (CN) CHINA SEPT FIXED ASSETS INVESTMENTS (EX RURAL) YTD Y/Y: 5.4% V 5.3%E
• (CN) China Sept Fiscal Spending +11.7% y/y; Fiscal Rev +2% y/y
• (CN) China Sept Surveyed Jobless Rate: 4.9% v 5.0% prior
• (CN) CHINA SEPT RETAIL SALES Y/Y: 9.2% V 9.0%E
• (CN) CHINA PBOC SET YUAN REFERENCE RATE: 6.9387 V 6.9275 PRIOR (weakest CNY fix since Jan 4 2017)
• (CN) China PBoC Open Market Operation (OMO): To inject CNY30B in 7-day reverse repos v skipped prior: Net: CNY30B injection v nll prior
• (CN) China Finance Ministry (MOF) auctions 30-year bonds: yield 4.08% v 4.14%e; bid to cover 2.56x
• (CN) China Banking and Insurance Regulator (CBIRC) issues draft rules on bank wealth management units
• (CN) China said to have order rural banks to clean up non-performing loans (NPLs) faster - financial press
• (CN) Additional cities in Guangdong (China) said to plan support for listed companies - Chinese Press
• (CN) China Agriculture Ministry: China hog prices set to rise ahead of Chinese new year festival due to African Swine Fever's impact on supply; domestic soybean supply relatively ample
• (CN) China arrested former Vice Finance Minister Zhang Shaochun as part of corruption probe - financial press

Japan

• Nikkei 225 opened -1.4%
• (JP) JAPAN SEPT NATIONAL CPI Y/Y: 1.2% V 1.3%E; CPI EX FRESH FOOD (CORE): 1.0% V 1.0%E
• (JP) Japan Finance Min Aso: There are negative concerns over sales tax hike, trying to control negative impact as PM Abe says; To begin US/Japan trade talks in mid Jan
• (JP) Japan Trade Min Seko: Confirms considering steps to reduce credit card fees

Korea

• Kospi opened -0.8%
• North America
• US equity markets ended lower: Dow -1.3%, S&P500 -1.4%, Nasdaq -2.1%, Russell 2000 -1.8%

Europe

• (EU) ECB's Draghi: Reportedly tells EU leaders Euro area outlook positive but protectionism remains a source of risk
• (EU) ECB Villeroy (France): Low mortgage rates in France to rise gradually
• (IT) EU Commission responds to Italy draft budget plan: points to "particularly serious" non-compliance; says Italy plans "unprecedented" deviation from budget rules
• Reportedly internal OPEC report sees bearish factors causing oil price to fall in coming weeks - press

Levels as of 01:30ET

• Nikkei 225, -0.8%, ASX 200 -0.1%, Hang Seng +0.5%; Shanghai Composite +0.6%; Kospi +0.2%
• Equity Futures: S&P500 +0.4%; Nasdaq100 +0.6%, Dax +0.4%; FTSE100 +0.5%
• EUR 1.1463-1.1449 ; JPY 112.45-112.13 ; AUD 0.7114-0.7088 ;NZD 0.6567-0.6523
• Dec Gold +0.1% at $1,230/oz; Oct Crude Oil +0.3% at $68.86/brl; Dec Copper +0.6% at $2.747/lb

China’s economic growth decelerated further in 3Q18, as the impacts of restraining infrastructure investment and trade war surfaced. GDP growth moderated to +6.5% y/y in the third quarter, the slowest since the first quarter of 2009. Growth came in lower than market expectations and second quarter’s +6.7%. On an annualized basis, GDP eased to +5.9% q/q, from 6.4% in 2Q18 and +7.2% in 1Q18.

Earlier this week, the government released September’s inflation report. Headline CPI accelerated to +2.5% y/y from +2.3% a month ago, in line with expectations. PPI moderated to +3.6% y/y from +4.1% in the prior month.

China’s exports surprised to the upside in September. Exports growth accelerated to +14.5% y/y, from +9.8% a month ago. Interestingly, exports to the US climbed higher to +14% despite trade war. The result can be explained by front-loading in demand from the US ahead of a new round of trade tariff ($200B on Sep 24). We expect the negative of trade tariff would be more evident in the fourth quarter and early 2019.

Other major indicators were mixed. Caution is needed on interpretation due to seasonal factors. Growth in industrial production eased to +5.8% y/y, compared with consensus of +6% and August’s +6.1%. While a slowdown had been anticipated following the release of disappointing manufacturing PMI earlier this month, the pace came in faster than expected.

Retail sales growth strengthened for a second straight month, to +9.2% y/y from 9% in August. Much of the gain was likely driven by Mid Autumn holiday when fell in September this year (October last year).

Urban fixed asset investment (FAI) growth climbed modestly higher to +5.4% in the first 9 months of the year, compared with +5.2% in the first 8 months. Manufacturing investment jumped most than +1.2 percentage points to +8.7% but infrastructure investment continued to decelerate. The FAI growth was too mild, compared with the government’s ramp up monetary easing over the past several months.

China’s easing monetary policy and intervention in the FX market would continue. With the latest reduction in effect on October 15, PBOC has cut RRR for 4 times this year. Given the expectations that the worse of the economy is yet to come, further reduction is expected. This direction contradicts with the authority’s effort to contain debt levels, potentially lingering, if not snowballing, the problem.

Daily Pivots: (S1) 0.8776; (P) 0.8792; (R1) 0.8815; More...

Intraday bias in EUR/GBP remains neutral for consolidation above 0.8722. With 0.8847 support turned resistance intact, further fall is expected. On the downside, break of 0.8772 will target 0.8620 low first. Decisive break there will resume whole down trend from 0.9304. In that case, next target will be 100% projection of 0.9305 to 0.8620 from 0.9097 at 0.8412.

In the bigger picture, EUR/GBP is seen as staying in long term range pattern started at 0.9304 (2016 high). Current development suggests that fall from 0.9303, as a down leg in the pattern, is still in progress. But in case of deeper fall, downside should be contained by 0.8116 cluster support, 50% retracement of 0.6935 (2015 low) to 0.9304 at 0.8120, to bring rebound.

Daily Pivots: (S1) 1.6093; (P) 1.6140; (R1) 1.6179; More....

EUR/AUD's fall from 1.6357 is still in progress and intraday bias stays on the downside for 1.5984 support. For now, we're still viewing price actions from 1.6353 as a consolidation pattern. Thus, downside should be continued by 1.5984 to bring up trend resumption eventually. On the upside, above 1.6159 minor resistance will turn bias back to the upside for retesting 1.6357 first.

In the bigger picture, up trend from 1.3624 (2017 low) is still in progress. Further rise should be seen to retest 1.6587 (2015 high). Decisive break there will resume the long term rally and target 1.7488 fibonacci level. On the downside, break of 1.5984 support is need to be the first sign of medium term reversal. Otherwise, outlook will remain bullish in case of deep pull back. However, sustained break of 1.5984 will be an early sign of trend reversal.

Daily Pivots: (S1) 1.1429; (P) 1.1456; (R1) 1.1474; More...

EUR/CHF is still bounded in consolidation below 1.1491 and intraday bias remains neural first. Further rally is expected as long as 1.1368 minor support holds. Above 1.1491 will target 1.1713 resistance for confirming bullish trend reversal. On the downside, however, break of 1.1368 minor support will argue that the rebound has completed and turn bias back to the downside for 1.1154/98 zone again.

In the bigger picture, price actions from 1.2004 medium term top is seen as a correction only. Downside should be contained by support zone of 1.1198 (2016 high) and 61.8% retracement of 1.0629 to 1.2004 at 1.1154 to complete it and bring rebound. This cluster level is in proximity to long term channel support (now at 1.1234) too. A break of 1.2 key resistance is still expected in the medium term long term. However, sustained break of the mentioned support zone will mark reversal of the long term trend. In that case, 1.0629 key support will be back into focus.

AAPL short-term Elliott wave view suggests that a rally to $233.53 high ended supercycle degree wave (III) as an impulse. Down from there, supercycle degree wave (IV) remains in progress as double three structure. Where the initial decline to $212 low ended cycle degree wave w. The internals of that leg lower unfolded as a Zigzag structure where primary wave ((A)) ended in 5 waves at $220.20 low. Up from there a bounce to $227.48 high ended primary wave ((B)) bounce. Then finally a decline to $212 low ended primary wave ((C)) in another 5 waves & also completed cycle degree wave w.

Up from there, the stock corrected the cycle from $233.53 high in wave x bounce. The internals of that bounce unfolded as lesser degree double three structure. Where primary wave ((W)) ended at $222.25 high as zigzag structure. Then a pullback to $216.82 low ended primary wave ((X)) as a Flat structure. Above from there, a rally to $223.93 high ended primary wave ((C)) as a Flat & also completed cycle degree wave x. Currently, cycle degree wave y remain in progress as a Zigzag structure where primary wave ((A)) ended at $213 low. And while primary wave ((B)) bounce fails below $223.93 high and more importantly below $233.53 high expect AAPL to extend lower 1 more time towards $202.52-$189.25 100%-161.8% Fibonacci extension area of cycle degree w-x before upside renew or stock does a 3 wave bounce at least. We don’t like selling it.

AAPL 1 Hour Elliott Wave Chart

The EUR/USD is testing the previous bottom and key Fibonacci support levels for a key break or bounce decision.

The EUR/USD is expected to make a bullish bounce and reversal above the 100% Fibonacci level and previous bottom if price is indeed building a bullish ABC (blue) zigzag pattern. The break above the resistance trend line (red) could indicate a bullish breakout.

The EUR/USD seems to have completed 5 bearish waves at the 88.6%Fibonacciretracement level of wave B vs A (blue) but a break above the resistance is needed to confirm that. A break below the bottom invalidates this bullish ABC (blue) wave pattern.