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Notes/Observations

US Non-farm payroll expected to rebound from the hurricane-affected Sept report

Negative economic impact of Brexit is the main challenge for BOE

Overnight

Asia:

China Oct Caixin Serv PMI: 51.2 v 50.6 prior

Australia Sept Retail Sales data mixed M/M: 0.0% v 0.4%e; Q3 Ex Inflation Q/Q: 0.1% v 0.0%e

Europe:

ECB’s Weidmann (Germany) reiterated that ECB board members were in agreement that accommodative monetary policy remains necessary. He noted that it was far too early to discuss successor for Draghi (**Note: term ends in Nov 2019)

Spain state prosecutor asks judge to issue arrest warrant for former Catalan President Puigdemont (**Note: Puigdemont: Arrests are an attack on democracy; demands end to political repression)

Americas:

President Trump appointed Jerome Powell to the Fed Chair position (as expected)

GOP leadership tax plan summary document: To set tax brackets at zero, 12%, 25%, 35% and 39.6%. Would keep mortgage interest tax deduction for existing loans and newly purchased homes up to $500K [reduced from $1M] and allow state and local property taxes deduction up to $10K

President Trump: House Republican tax bill important step towards tax relief; will work tirelessly to deliver historic tax cuts and reforms

White House National Security Adviser McMaster: Trump will reiterate North Korea is threat to entire world on Asia trip (**Note: Trump embarks on a 10-dayt Far East trip on Fri)

Venezuela President Maduro stated that would restructure all foreign debt after Fri, Nov 3rd

Economic Data

(IN) India Oct PMI Services: 51.7 v 50.7 prior (2nd month of expansion), PMI Composite PMI: 51.3 v 51.1 prior

(IE) Ireland Oct Services PMI: 57.5 v 58.7 prior (62nd month of expansion but lowest since Nov 2016), Composite PMI: No est v 57.6 prior

(RU) Russia Oct PMI Services: 53.9 v 55.0e (21st month of expansion), PMI Composite: 53.2 v 54.8 prior

(TR) Turkey Oct CPI M/M: 2.1% v 1.7%e; Y/Y: 11.9% v 11.5%e; CPI Core Index Y/Y: 11.8% v 11.2%e

(ZA) South Africa Oct PMI (whole economy): 49.6 v 48.5 prior

(SE) Sweden Oct PMI Services: 61.4 v 63.8 prior

(ES) Spain Oct Net Unemployment M/M: +56.8K v +27.9K prior

(NG) Nigeria Oct PMI: 55.8 v 54.9 prior

(NO) Norway Oct Unemployment Rate: 2.4% v 2.5%e

(UK) Oct Services PMI: 55.6 v 53.3e (15th month of expansion), Composite PMI: 55.8 v 53.8e

Fixed Income Issuance:

(IN) India sold total INR150B vs. INR150B indicated in 2024, 2027, 2034 and 2051 bonds

(ZA) South Africa sold ZAR vs. ZAR800M indicated in I/L 2029, 2033 and 2046 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.2% at 395.6, FTSE +0.3% at 7576, DAX +0.4% at 13493, CAC-40 flat at 5511, IBEX-35 -0.9% at 10359, FTSE MIB +0.1% at 23064, SMI +0.1% at 9291, S&P 500 Futures +0.1%]

Market Focal Points/Key Themes:

European Indices trade mostly higher across the board with the exception of the Spanish Ibex, as Indices trade in a sideways fashion ahead of October's US Non Farm Payrolls.

A number of components from the French CAC reported, with Air France down sharply after initially touching a multi year high following results, while SocGen trades lower after missing estimates. Altice trades lower after trimming its outlook and Lonmin trades over 15% lower after its production update and the delay of their FY results.

Elsewhere renewable energy stock are under pressure after proposed US tax changes that could cut tax credit by over a third.

Looking ahead notable earners include Duke Energy and CBRE.

Equities

Consumer discretionary [Air France [AF.FR] -8.2% (Earnings), L'Oreal [OR.FR] -0.6% (Earnings)]

Materials: [Lonmin [LMI.UK] -20% (Trading update, to delay FY results)]

Financials: [ SocGen [GLE.FR] -3.3% (Earnings), Axa [CS.FR] -1.6% (Earnings)]

Telecom: [ Altice [ATC.NL] -10.0% (Earnings)]

Energy: [Vestas Wind [VWS.DK] -9.5% (Proposed US tax changes)]

Speakers

ECB's Nowotny (Austria): ECB took right decision at last week policy meeting. Reiterated economy was improving substantially but not there yet. Inflation moving in the right direction and believed it could be higher than current expectations in 2018. Reiterated too early to discuss an end date for QE and that the ECB would not run into any scarcity issues on bond buying

BOE Dep Gov Broadbent: Spare capacity has been diminishing (in-line with recent QIR). Nov rate hike was a moderate one and might need a couple more rate hikes (**Note: BOE currently forecasting 2 hikes by 2020). Brexit was clearly having some impact on economy; affecting investment and spending

ECB's Angeloni (SSM board member): To rigorously review bank's plans to reduce bad loans

Greece PM Tsipras: Greek bailout review will close soon

Norway Central Bank (Norges) Dep Gov Nicolaisen: Low rate globally limits monetary policy maneuvers

Russia govt spokesperson: President Putin could meet Trump on sideline of APEC Summit meeting in Vietnam

Currencies

FX market was holding steady after Trump chose Jerome Powell as the new Federal Reserve chair (as speculated). US Non-farm payroll expected to rebound from the hurricane-affected Sept report and keep the door open for a 3rd rate hike in Dec.

EUR/USD at 1.1645 area ahead of the NY morning.

GBP/USD continued its soft tone following Thursday’s dovish rate hike by the BOE. Pait hit a 1-month low at 1.3040 in the session. Dealers noted that BOE dropped wording that interest rates may need to rise more than markets expected and that BOE Gov Carney had now linked the future path of rates to the outcome of the Brexit talks. Focus was on the PMI Services data which beat expectations and helped the GBP to move off its worst levels. The data gave some justification to the recent BOE rate hike

Fixed Income

Bund futures trade at 162.81 up 17 ticks, and back towards the October high. Support lies at 162.00, followed by 161.50. Resistance stands initially at 163.51, followed by 164.25.

Gilt futures trade at 125.30 up 14 ticks following yesterday’s BOE rate hike that investors interpreted as dovish. Continued upside eyeing 125.75 then 126.47. Downside targets include 124.90 then 124.24.

Friday’s liquidity report showed Thursday’s excess liquidity rose to €1.849T from €1.838T and use of the marginal lending facility rose to €188M from €237M

Corporate issuance saw 5 issuers raise $4.0B in the primary market. For the week ending Nov 1st Lipper fund flows reported IG fund net inflows of $3.6B and High yield funds reported net inflows of $1.2B, most since August.

Looking Ahead

06:00 (EU) Daily Euribor Fixing

06:00 (FR) France Debt Agency (AFT) announces upcoming auctions

06:30 (AT) ECB’s Nowotny (Austria)

06:30 (NO) Norway Central Bank (Norges) Gov Olsen in Bergen

06:30 (ZA) South Africa to sell ZAR800M in I/L 2029, 2033 and 2046 bonds

07:00 (IE) Ireland Oct Live Register Monthly Change: No est v -0.3K prior

07:00 (UK) DMO to sell combined £3.5B in 1-month, 3-month and 6-month Bills (£0.5B, £1.0B and £2.0B respectively)

07:30 (IN) India Weekly Forex Reserves

07:45 (US) Daily Libor Fixing

08:00 (CL) Chile Sept Retail Sales Y/Y: 4.3%e v 6.0% prior

08:30 (US) Oct Change in Nonfarm Payrolls: +313Ke v -33K prior, Change in Private Payrolls: +302Ke v -40K prior, Change in Manufacturing Payrolls: +15 v -1K prior

08:30 (US) Oct Unemployment Rate: 4.2%e v 4.2% prior, Underemployment Rate: No est v 8.3% prior

08:30 (US) Oct Average Hourly Earnings M/M: 0.2%e v 0.5% prior; Y/Y: 2.7%e v 2.9% prior; Average Weekly Hours: 34.4e v 34.4 prior

08:30 (US) Sept Trade Balance: -$43.3Be v -$42.4B prior

08:30 (CA) Canada Oct Net Change in Employment: +15.0Ke v +10.0K prior; Unemployment Rate: 6.2%e v 6.2% prior

08:30 (CA) Canada Sept Intl Merchandise Trade (CAD): -3.0Be v -3.4B prior

09:05 (UK) Baltic Dry Bulk Index

10:00 (US) Sept Final Durable Goods Orders: 2.0%e v 2.2% prelim; Durables Ex Transportation: No est v 0.7% prelim

10:00 (US) Sept Factory Orders: 1.2%e v 1.2% prior; Factory Orders (ex-transportation): No est v 0.4% prior

10:00 (US) Oct ISM Non-Manufacturing Composite: 58.5e v 59.8 prior

10:00 (MX) Mexico Sept Leading Indicators M/M: No est v 0.17% prior

10:45 (US) Oct Final Markit Services PMI: 55.9e v 55.9 prelim, Composite PMI: No est v 55.7 prelim

11:00 (EU) Potential European sovereign ratings after European close

(BE) Belgium Sovereign Debt to be rated by Moody's

(NO) Norway Sovereign Debt to be rated by DBRS

(TR) Turkey Sovereign Debt to be rated by S&P

12:15 (US) Fed’s Kashkari (dove, voter)

13:00 (US) Weekly Baker Hughes Rig Count data

15:00 (CO) Colombia Oct Total PPI M/M: No est v 0.4% prior

16:15 (FR) ECB’s Coeure (France)

In result of the previous trading session, the exchange rate has formed symmetrical triangle pattern. A combination of the 55-, 100- and 200-hour SMAs in conjunction with the weekly PP located at 1,274.00 suggests that the pair most probably is going to make a breakout in the upward direction. On the other hand, that side also contains a combined resistance set up by the 61.8% Fibonacci retracement level and the updated monthly PP 1,279.41. For this reason, the fully-fledged breakout most probably will be postponed until release of information on the American employment change and change in salaries. There is a need to take into account that on daily chart the pair has formed an ascending triangle pattern, which implies the further appreciation of the yellow metal against the buck.

None of the yesterday's events created an impulse strong enough to force the pair to make a breakout from the rectangle pattern. Moreover, expectations of the upcoming release of information about the state of the American labour market led to formation of a minor symmetrical triangle pattern. A sharp plunge looks unlikely, as the southern side is reliably protected by a combination of the 100- and 200-hour SMAs together with the weekly PP at 113.79. On the other hand, a resistance area between the 114.25 and 114.35 levels managed to neutralize surge of the rate more than once in the past. Nevertheless, if the employment change appears to be really positive, traders with bullish outlook are likely to use this occasion to try to elevate the pair to the July 2017 maximum at 114.50.

A decision to raise the interest rate led to 110 points fall of the rate. Initially, the bottom line of a dominant ascending channel managed to halt the pair near 1.3120. However, the subsequent Governor Carney press conference boosted this process and bears managed to push the pair to the weekly S1. On daily chart it seems that yesterday's downfall confirmed existence of a new medium-term descending channel. However, even in that case it looks like the Pound has to restore some lost positions before making a decisive breakout from the dominant ascending channel. An upcoming release of the British Services PMI might provide some small impulse for the upward movement. On the other hand, the two resistance levels near 1.3085 and 1.3107 most likely will manage to constrain the pair.

The US President Donald Trump named Governor Powell as the new Fed Chair yesterday. However, markets showed little response to this decision, as it was widely expected. The news that actually moved the currency rate was disclosure of some details of the new tax reform. From technical point of view, the weakening of the buck resulted in formation of a junior ascending channel. However, the exchange rate is likely to fail to surge to its upper boundary, as that path is blocked by a combination of the weekly PP at 1.1674 and the falling 200-hour SMA near 1.1682. The likelihood of a rebound is also supported on daily chart where the pair additionally faces the 23.6% Fibonacci retracement level at 1.1679. Plus the average market sentiment remains 59% bearish.

The Euro edged lower against the American counterpart on the US reports showing an increase in non-farm productivity. Then, the release of details about the Trump's tax reform strengthened the EUR/USD pair, where the Greenback lost 0.29% or 34 base points against the Euro, but continued a side move at the 1.1660 level. In addition, the reaction on the announcement of the Fed nominee was muted, when it matched expectations for Jerome Powell to be the next chairman.

The Labour Department said that the US worker productivity grew 3.0% year-on-year in the Q3, the fastest growth pace in nearly three years, which fuelled diminishing of labour costs. But, data pointed to the US growth to be sustained, keeping the chances for the Fed rate hike.

The British Pound plummeted sharply against the Greenback, as the Bank of England announced changes in its monetary policy. Data hurt the GBP/USD currency pair, putting the rate 0.77% or 102 base points down to the 1.312 mark, close to the monthly low.

The Bank of England raised interest rates from 0.25% to 0.50% for the first time in ten year, adding that further increases would be determined by the outcome of Brexit negotiations and how the country prepares to quit the European Union. Britain's economic expansion slowed markedly since the Brexit vote, the factor delaying the rate hike, but the BoE Governor Mark Carney feared that Brexit could aggravate already weak productivity and make the economy prone to high inflation.

USDCAD is neutral in the short term after a recent rally lost steam at a high of 1.2916. The underlying downtrend from 1.3793 is weaker after the strong rebound but the pair still remains under the 200-day moving average, keeping the bearish market structure still in place.

The short-term technicals are neutral and suggest the rally is exhausted. RSI reached into overbought levels above 70.

USDCAD is expected to consolidate in the near-term unless it can break above the 50% Fibonacci retracement level of the downleg from 1.3793 to 1.2061. Rising above this 1.2924 level would bring the 200-day MA into sight. This is an important barrier as it converges upon the 1.3000 psychological level. Clearing this key resistance would put USDCAD on the path to re-test the 1.3793 peak and change the outlook to bullish.

To the downside, soft support is expected at last week's low of 1.2780. Below this, the 1.2500 level is another support (close to the 23.6% Fibonacci). A break below this support zone would turn the focus to the 1.2061 more than two-year low to strengthen the bearish bias, with a high probability of resuming the broader downtrend.

In the short run, USDCAD is expected to remain capped under 1.2916, with immediate risk tilted to the downside

GBPJPY does not have a clear trend since rising to a high of 152.85, subsequently consolidating gains in a broad 147 – 152 range.

On the short-term time frame, the pair is neutral to bearish, pausing a decline after rallying to the upper end of the range near 152 and dropping sharply to break below the 200-period moving average. RSI reached near oversold levels, suggesting the decline in the market has been exhausted.

Prices are expected to consolidate in a very tight range just under the 149 level in the near term, with immediate risk tilted to the downside for a move towards 147. This is expected to be an important support level since it is the 50% Fibonacci retracement level of the upleg from 141.34 to 152.85. From this point, there is scope for an extension lower towards the 144 area.

A break back above 149 is needed to shift focus to the upside for a push towards the upper end of the range at 152, bringing the 152.85 peak into sight. At this stage the odds are high for a resumption of the uptrend that started off the 140 handle.

For now, the short-term bias is bearish but downward momentum has eased, pointing to more consolidation during the next few sessions.

As Asian traders were completing this week's trading, the dollar was not much changed relative to most major counterparts with investors' attention falling to the US jobs report due at 1230 GMT.

At 0818 GMT, the dollar's index against a basket of currencies was 0.1% higher, trading at 94.79. It yesterday fell to a one-week low of 94.41, perhaps on uncertainty related to US tax reform. Euro/dollar was 0.1% lower and not far below 1.1650. Dollar/yen was flat, a few pips above the 114 handle. Japanese markets were closed today for Culture Day.

President Trump yesterday announced that current Fed Board of Governors member Jerome Powell is his pick to lead the Federal Reserve when Janet Yellen's term expires in February. Given what preceded, this was already priced in by the markets -at least for the most part- and reaction in the forex markets was subdued upon the news.

Forecasts are for US nonfarm payrolls to have increased by 310k in October, a vast difference to September's decline by 33k. However, just as last month's fall was attributed to hurricane-related disruptions, October's rise will in large part be coming from the recovery efforts following the extreme natural phenomena hitting US soil. Having this in mind, market participants are, similar to the previous month's report, likely to focus on wage growth rather than the number of positions added to the economy. Expectations are for average earnings to increase by 0.2% m/m and 2.7% y/y, slowing down from September's 0.5% and 2.9% respectively.

Pound/dollar was last 0.1% lower, trading close a near one-month low of 1.3037 hit earlier in the day. Euro/pound was more or less unchanged relative to yesterday's close, trading around 0.8925. Sterling yesterday recorded heavy losses (in excess of 1%) relative to both currencies following what markets interpreted as a “dovish hike” by the Bank of England.

The Australian dollar recorded losses versus its US counterpart after September retail sales surprised to the downside (0.0% growth Vs expectations of 0.4%). Aussie/dollar was last 0.5% lower at 0.7973. Kiwi/dollar was up by 0.1% at 0.6919, rising for the third straight day and further distancing itself from last week's multi-month low of 0.6816.

In commodities, gold was 0.1% lower at $1,275.44 an ounce. WTI and Brent crude were 0.5% and 0.4% higher at $54.81 and $60.85 a barrel, trading near multi-month highs. The US Baker Hughes oil rig count will be released at 1700 GMT.

Canadian employment data will be released at 1230 GMT. Other important data out of the US will pertain to September's factory orders as well as October's ISM non-manufacturing PMI (both due at 1400 GMT). Minneapolis Fed President and FOMC voting member Neel Kashkari is scheduled to participate in a Q&A session at 1615 GMT.