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SNB report solid interim results

The Swiss National Bank published interim results for the first three quarters of the year. After mixed mid-year results - the SNB reported an interim profit of CHF 1.2 billion - the last update brought the smile back to the SNB and all Swiss cantons. As of 30 September, the SNB reported a profit of CHF 33.7bn, which results mostly from a profit on foreign currency positions (30.3bn). Gold holdings appreciated by CHF 2.3bn. The central bank made a profit of CHF 1.5bn from negative interested it charges.

Looking at the details, the SNB benefited from a solid equity market that increased the valuation of its equity positions by CHF 14.4bn, plus a dividend income of CHF 2.5bn. On the other hand, the central bank suffered a valuation loss of CHF 4bn on its bond positions that was however offset by an interest income of CHF 6.8bn. Finally, the continuous depreciation of the Swiss franc over the summer months allowed the SNB to record exchange rate-related gains of CHF 10bn. Indeed, on a trade-weighted basis the Swiss franc fell more than 4.1% between July and September. The CHF depreciation was particularly pronounced against the EUR (-4.50%), the British pound (-4%) and most Scandinavian currencies.

Although Swiss cantons will almost surely receive a piece of the cake, they will have to wait to get the final result and the year is not over yet. The Swiss franc really had a nice ride over the last few months, however one cannot rule out a slight correction as investors are slowly trimming their risky positions as we move into the next year. On Tuesday morning, EUR/CHF has stabilized at around 1.16.

JPY reliant on US policy

As was widely expected the BoJ held its policy strategy unchanged. The vote was 8-1 with the lone dissenter (policy board member Goushi Kataoka) voting for additional easing measures such as examining 10 year 0.0% and 15 year 0.20% yield targets. In their quarterly outlook report, the bank downgraded core inflation forecasts to 0.8% from 1.1% in 2017 and 1.4 from 1.5% in 2018. Member continued to expect their 2% inflation target rate would be reached by 2019. A bright spot was growth, which was revised marginally higher to 1.9% from 1.8%. At the accompanying press conference Governor Kuroda reiterated, that discussion of exit strategy was premature.

Effect on JPY was muted, as USDJPY was range-bound between 112.95 and 113.25. In regards to FX, BoJ policy is losing effectiveness to debase the JPY as years of Abenomics has exhausted traders. Any adjustment in the BoJ ultra-accommodative policy would be unlikely unless CPI climbed well above 1% in a smooth trend. However, markets could see micro tuning with slowing its purchasing this year limitations on the volume of JGBs in rotation, but a maintenance of YCC should not be a problem.

FX prices has reconnected with US yields (especially US 10yr yields) indicated that the fate of USDJPY is no longer in the hands of BoJ but dependent on policy decision in the US. The failure of the USDJPY to break 115 suggests correction to 112.30 to loosen extended longs. PM Abe recent decisive electoral victory and probability that BoJ Governor Haruhiko Kuroda will be reappointed in April indicated JPY weakening policy will remain although less effective, in effect.

The euro has posted small losses in the Tuesday session. Currently, EUR/USD is trading at 1.1634, down 0.15% on the day. On the release front, Eurozone data was mixed, as CPI Flash Estimate missed the estimate, while Preliminary Flash GDP beat the forecast. In the US, today’s key event is CB Consumer Confidence, which is expected to improve to 121.1 points. Wednesday is a busy day, with the US releasing two key events – ADP Nonfarm Payrolls and ISM Manufacturing PMI. As well, the FOMC will release its monthly rate statement.

In the eurozone inflation slowed in October. CPI Flash Estimate edged down to 1.4%, shy of the forecast of 1.5%. Core CPI Flash Estimate dipped to 0.9%, short of the estimate of 1.1%. There was good news as well, as Preliminary Flash GDP remained unchanged at 0.6%, above the estimate of 0.5%. Unemployment continues to head lower, dropping to 8.9%. This is the lowest level since March 2009. The ECB has announced that it will begin tapering its asset purchase program, as the eurozone economy has rebounded in 2017. Still, inflation remains persistently below the ECB’s target of around 2 percent. The asset purchase program has been extended to April 2018, but the ECB could implement an extension if economic data tails off or if inflation fails to move upwards.

The Spanish government has dissolved the Catalan government and parliament, after imposing direct rule on Catalonia. The Catalan government declared independence just before Madrid invoked Article 155 of Spain’s constitution. The Spanish government has drawn up charges of rebellion against Catalan President Carles Puidgemont, but he has skipped town, and is reportedly in Belgium. It’s unclear what Puidgemont will do next – he could request political asylum or declare a government-in-exile. Elections have been slated for December 21, and two parties from Puidgemont’s coalition have declared they will participate in the election. With Catalans split down the middle on independence, this saga is likely to continue for some time.

EURUSD is slow and it may be because of closed markets in Germany because of Reformation Day. So DAX is not moving at the moment, but it may open much higher tomorrow if US stocks will continue to move higher. In fact, there was a three wave retracement on E-mini S&P500 which looks like a completed wave four so price may be back at the highs soon.

S&P500, 1H

While stocks are headed up we may continue to see stronger dollar, especially against commodity currencies and against euro now as well. There is a nice rally from 1.1570, but it’s slow so probably a corrective leg that can stop at 1.1670/80 intraday resistance, where fourth wave rally can be limited. A drop back to the lows is in our view as long as 1.1729 is not breached.

EURUSD, 1H

Notes/Observations

Overnight

Asia:

China Oct Manufacturing PMI (official govt) 51.6 v 52.0e; Non-Manufacturing PMI: 54.3 v 55.4 prior; Policy makers may be incrementally more relaxed about supporting growth after the Party Congress

Bank of Japan (BOJ) left its policy steady (as expected). Left Interest Rate on Excess Reserves (IOER) unchanged at -0.10% and maintained its policy framework of "QQE with Yield Control" around 0.00% and asset purchases at annual pace of ¥80T. Vote was 8 to 1 with Kataoka (new member) again dissenting

BOJ Outlook for Economic Activity and Prices raised FY17/18 GDP growth outlook from 1.8% to 1.9% and maintained FY18/19 GDP growth outlook at 1.4% and FY19/20 GDP growth outlook at 0.7%. Cut FY17/18 core CPI outlook from 1.1% to 0.8%; Cut FY18/19 core CPI outlook from 1.5% to 1.4% but maintained FY19/20 core CPI (excluding effect of consumption tax hike) at 1.8%

Japan Sept Jobless rate in-line at 2.8% and again matched its lowest rate since Jun 1994

Europe:

Chancellor of Exchequer Hammond (Fin Min) is under pressure to abandon fiscal targets, but pledges to respect fiscal rules

Fitch on Spain: Sovereign rating reflects persistent Catalonia tension. Escalation that significantly worsened the outlook for Spanish growth and public finances could prompt negative action on the sovereign rating (**Reminder: On July 21st Fitch affirmed Spain sovereign rating at BBB+; revises outlook to Positive from Stable)

UK Oct GFK Consumer Confidence: -10 v -10e

Americas:

White House Press Sec Sanders: White House wants to pass House tax bill by Thanksgiving (the same time frame given by Speaker Ryan). President Trump has no intention of firing Special Counsel Mueller; indictments announced today have nothing to do with the President or his –campaign

White House: President Trump to make announcement on Fed Chair decision on Thursday (Nov 2). Most recnt speculation that Trump was likely to name Jerome Powell as Fed Chair

Treasury Sec Mnuchin: Treasury was not seeing a lot of demand for ultra long bonds; to continue to monitor market for interest

Economic Data

(FR) France Q3 Advance GDP Q/Q: 0.5% v 0.5%e; Y/Y: 2.2% v 2.1%e

(TR) Turkey Sept Trade Balance: -$8.1B v -$8.1Be

(FR) France Oct Preliminary CPI M/M: 0.1% v 0.1%e; Y/Y: 1.1% v 1.0%e

(FR) France Oct Preliminary CPI EU Harmonized M/M: 0.1% v 0.1%e; Y/Y: 1.2% v 1.2%e

(FR) France Sept Consumer Spending M/M: 0.9% v 0.6%e; Y/Y: 2.8% v 1.9%e

(FR) France Sept PPI M/M: 0.5% v 0.4% prior; Y/Y: 2.1% v 1.9% prior

(TW) Taiwan Q3 Preliminary GDP Y/Y: 3.1% v 2.2%e

(AT) Austria Q3 Preliminary GDP Q/Q: 0.6% v 0.7% prior; Y/Y: 2.6% v 2.8% prior

(IT) Italy Sept Preliminary Unemployment Rate: 11.1% v 11.1%e (matched lowest level since 2012)

(ZA) South Africa Q3 Unemployment Rate: 27.7% v 27.7% prior (matched highest level since 2003)

Fixed Income Issuance:

(ID) Indonesia sold total IDR22.5T vs. IDR15T target in 3-month and 9-month Bills; 5-year, 10-year 15-year Bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.2% at 394.7, FTSE 0.4% at 7515, DAX +0.1% at 13229, CAC-40 +0.2% at 5502, IBEX-35 +0.4% at 10484 , FTSE MIB flat at 22758, SMI +0.4% at 9214, S&P 500 Futures +0.2%]

Market Focal Points/Key Themes:

European Indices trade higher across the board, continuing the upward momentum with good earnings from Oil Giant BP, Airbus and Ryanair underpinning the rise. Advertising giant WPP trades higher despite cutting their full year outlook, while Gerberit and BNP Paribas trade lower after missing estimates.

Looking notable earners include Pfizer, Under Armour, Lumber Liquidators and Kellogg.

Equities

Consumer discretionary [ Just Eat [JE.UK] +3.9% (Q3 update, raises outlook), RyanAir [RYA.UK] +4.9% (Earnings)]

Industrials: [Airbus [AIR.FR] +2.3% (Earnings), Geberit [GEBN.CH] -4.6% (Earnings), Weir Group [WEIR.UK] -6.2% (Trading update, cuts outlook), SCA [SCAB.SE] +4% (Earnings), - Oerlikon [OERL.CH] +2.8% (Earnings)]

Financials: [BNP Paribas [BNP.FR] -3.3% (Earnings)]

Energy: [BP [BP.UK] +3.5% (Earnings), Siemens Gamesa [SGRE.ES] +5.8% (Contract)]

Speakers

Russia Central Bank 1st Dep Gov Yudaeva reiterated that govt opposed to capital controls. Had the tools to maintain stability under current sanctions

Russia Central Bank Oct 12-month Inflation Expectation Survey: Households see CPI at 9.9% v 9.6% prior survey

BOJ Gov Kuroda post rate decision press conference reiterated that domestic economy was expanding moderately while downside risks to prices were larger. To continue with easing to hit 2% inflation target asap. BOJ was far from price target and no need to change Yield Control (YCC). He added that BOJ saw no need to adjust all easing package at once at some point in the future. Upward pressure on wages was growing steadily. Important for govt to maintain faith on fiscal reform; have not given up on primary budget surplus discipline

Bank of Korea (BOK) Gov Lee Ju-yeol: To check if the solid growth trend continues and also check price movements before any change in policy

Currencies

FX markets were subdued at month end with German markets closed for public holiday.

The GBP/USD little changed with focus on the upcoming BOE rate decision on Thursday. For the month of October the GBP was weaker as dealers noted that the 1st interest-rate increase in a decade would not enough to offset their concerns over Brexit negotiations

USD/CHF was just below parity but the recent weakening of the CHF franc currency helped the SNB report a record 9-month net profit of CHF 33.7B.

Fixed Income

Bund futures trade at 162.75 up 3 ticks poised to end October at month’s high. Support lies at 161.00, followed by 160.38. Resistance stands initially at 163.51, followed by 164.25.

Gilt futures trade at 124.51 up 18 ticks, with the focus remaining on the BOE meeting on Thursday. Continued downside eyeing 123.26. Upside targets 124.90 then 125.24.

Tuesday’s liquidity report showed Monday’s excess liquidity rose to €1.833T from €1.828T and use of the marginal lending facility rose to €431M from €328M

Corporate issuance shows primary sees busiest October on record.

Looking Ahead

(ES) Spain Sept YTD Budget Balance: No est v -€21.5B prior

(AT) Austria Debt Agency (AFFA) announcement on upcoming RAGB bond auction on Wed, Nov 7th

06:00 (EU) Euro Zone Oct Advance CPI Estimate Y/Y: 1.5%e v 1.5% prior; CPI Core Y/Y: 1.1%e v 1.1% prior

06:00 (EU) Euro Zone Q3 Advance GDP Q/Q: 0.5%e v 0.6% prior; Y/Y: 2.3%e v 2.3% prior

06:00 (EU) Euro Zone Sept Unemployment Rate: 9.0%e v 9.1% prior

06:00 (IT) Italy Oct Preliminary CPI (NIC incl. tobacco) M/M: +0.1%e v -0.3% prior; Y/Y: 1.3%e v 1.1% prior

06:00 (IT) Italy Oct Preliminary CPI EU Harmonized M/M: 0.2%e v 1.8% prior; Y/Y: 1.3%e v 1.3% prior

06:00 (GR) Greece Aug Retail Sales Value Y/Y: No est v 2.3% prior; Retail Sales Volume Y/Y: No est v 1.6% prior

06:00 (EU) Daily Euribor Fixing

06:00 (ZA) South Africa to sell combined ZAR2.65B in 2032, 2040 and 2048 bonds

06:15 (CH) Switzerland to sell 3-month Bills

06:30 (UK) Weekly John Lewis LFL sales data

06:30 (EU) ECB allotment in 7-day Main Financing Tender (MRO) tender

06:30 (HU) Hungary Debt Agency (AKK) to sell in 3-month Bills

06:30 (BE) Belgium Debt Agency (BDA) to sell 3-month and 6-month bills

07:00 (IT) Italy Sept PPI M/M: No est v 0.5% prior; Y/Y: No est v 1.6% prior

07:00 (BR) Brazil Sept National Unemployment Rate: 12.4%e v 12.6% prior

07:00 (IL) Israel Sept Unemployment Rate: No est v 4.1% prior

07:45 (US) Weekly Goldman Economist Chain Store Sales

07:45 (US) Daily Libor Fixing

08:00 (CL) Chile Sept Unemployment Rate: 6.5%e v 6.6% prior

08:00 (ZA) South Africa Sept Trade Balance (ZAR): 10.0Be v 5.9B prior

08:00 (IN) India Sept Eight Infrastructure (Key) Industries: No est v 4.9% prior

08:30 (US) Q3 Employment Cost Index (ECI): 0.7%e v 0.5% prior

08:30 (CA) Canada Aug GDP M/M: 0.1%e v 0.0% prior; Y/Y: 3.5%e v 3.8% prior

08:30 (CA) Canada Sept Industrial Product Price M/M: 0.5%e v 0.3% prior; Raw Materials Price Index M/M: 0.4%e v 1.0% prior

08:55 (US) Weekly Redbook Retail Sales

09:00 (US) Aug S&P/Case-Shiller 20-City M/M: 0.40%e v 0.35% prior; Y/Y: 5.90%e v 5.81% prior; House Price Index (HPI): No est v 201.99 prior

09:00 (US) Aug S&P/Case-Shiller (overall) HPI Y/Y: No est v 5.94% prior, House Price Index (HPI): No est v 194.1 prior

09:00 (BR) Brazil Oct PMI Manufacturing: No est v 50.9 prior

09:00 (PL) Poland Oct Preliminary CPI M/M: 0.4%e v 0.4% prior; Y/Y: 2.1%e v 2.2% prior

09:00 (US) The FOMC begins its 2-day policy meeting (Decision on Wed)

09:05 (UK) Baltic Dry Bulk Index

09:45 (US) Oct Chicago Purchasing Manager: 60.0e v 65.2 prior

10:00 (US) Oct Consumer Confidence: 121.0e v 119.8 prior

10:00 (EU) Weekly ECB Forex Reserves:

10:00 (MX) Mexico Q3 Preliminary GDP Q/Q: 0.0%e v 0.6% prior; Y/Y: 1.6%e v 1.8% prior

10:00 (RU) Russia announces weekly OFZ bond auction

10:00 (BR) Brazil to sell I/L 2022, 2026, 2035 and 2055 Bonds

11:00 (CO) Colombia Sept National Unemployment Rate: No est v 9.1% prior; Urban Unemployment Rate: No est v 9.9% prior

11:00 (MX) Mexico Sept Net Outstanding Loans (MXN): No est 3.869T prior

11:30 (US) Treasury to sell4-Week Bills

15:00 (AR) Argentina Sept Industrial Production Y/Y: 4.8%e v 5.1% prior; Construction Activity Y/Y: No est v 13.0% prior

15:30 (CA) Bank of Canada (BOC) Gov Poloz in Parliament

16:30 Weekly API Petroleum Inventories

Crude oil has surged. Strong resistance given at 52.86 (28/09/2017) has been broken. The commodity is monitoring 1-year high. Expected to show continued increase.

In the long-term, crude oil has recovered after its sharp decline last year. However, we consider that further weakness are very likely. For the time being the pair lies in an upside momentum. Strong support lies at 35.24 (05/04/2016) while resistance can now be found at 55.24 (03/01/2017 high).

Silver is again grinding lower. Hourly support can be found at 16.60 927/10/2017 low). Hourly resistance is given at 17.46 (13/10/2017 high). Additional support can be found at 16.13 (06/10/2017 low).

In the long-term, the trend is rater negative. Further downsides are very likely. Resistance is located at 25.11 (28/08/2013 high). Strong support can be found at 11.75 (20/04/2009).

Gold remains weak. The technical structure confirms an underlying bearish trend. Strong support lies at a distance at 1204 (10/07/2017 high). Resistance is now located at 1288 (20/10/2017).

In the long-term, the technical structure suggests that there is a growing upside momentum. A break of 1392 (17/03/2014) is necessary ton confirm it, A major support can be found at 1045 (05/02/2010 low).

Bitcoin has broken key resistance at 6063. Strong support stands very far at 2975 (22/08/2017 low). The technical structure shows a very positive short-term momentum. Support can be located at 5325 (rising trendline). In the short-term, the digital currency should continue rising.

In the long-term, the digital currency has had an exponential growth. There are decent likelihood that the asset will reach $10'000.

EUR/CHF is back within former uptrend channel. Support is given at 1.1610 (27/10/2017 low). Rising channel suggests further bullish momentum.

In the longer term, the technical structure has reversed. Strong resistance is given at 1.20 (level before the unpeg). Yet, the ECB's QE programme is likely to cause persistent selling pressures on the euro, which should weigh on EUR/CHF. Supports can be found at 1.0184 (28/01/2015 low) and 1.0082 (27/01/2015 low).

EUR/GBP is showing downside pressures. However, as long as prices are below the resistance at 0.9046 (05/09/2017 high), the shortterm technical structure is biased to the downside Hourly support is given at a distance at 0.8746 (27/09/2017 low).

In the long-term, the pair has largely recovered from recent lows in 2015. The technical structure suggests a growing upside momentum. The pair is trading above from its 200 DMA. Strong resistance can be found at 0.9500 (psychological level).