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The relentless rally of US equities continued in the overnight session as investors remained optimistic about the earnings season. The S&P 500 soared to a record high of $4,570 while the Dow Jones rose to more than $35,742. Some of the companies that have reported strong results this week were Facebook, Microsoft, and HSBC. The rally continued even as many companies cite the rising cost of doing business as supply shortages remain. Some of the companies that will publish their results today will be Coca-Cola, Thermo Fisher, ADP, Fiserv, Bunge, and Garmin among others.

The US dollar index held steady after the US published strong economic data. Numbers by the Conference Board showed that the country’s consumer confidence bounced back in October. Consumer confidence rose from 109.8 in September to 113.8 in October. This increase was slightly better than the median estimate of 108.3. The index also reacted to the latest new home sales numbers. Later today, the US dollar will react to the latest core durable goods order numbers from the US.

The Canadian dollar declined slightly against the US dollar ahead of the Bank of Canada interest rate decision scheduled for later today. Analysts expect that the bank will leave interest rates unchanged at 0.25%. Analysts polled by Reuters estimate that the next rate hike will happen in the third quarter of the coming year. However, the bank will continue scaling back its asset purchases as the economy improves and as inflation remains stubbornly high. Oil prices have also helped to support the Canadian economy. Crude oil prices have risen to the highest level in more than 7 years.

USDCAD

The USDCAD rose to a high of 1.2387 ahead of the BOC decision. The pair managed to move above the 25-day and 15-day moving averages while the MACD has moved above the neutral level. It is also at the middle line of the ascending channel on the hourly chart. Therefore, the pair will likely keep rising as bulls target the key resistance at 1.2450.

EURUSD

The EURUSD pair declined to a low of 1.1590 after strong US consumer confidence data. On the four-hour chart, the pair moved below the key support level at 1.1620. This price was along the neckline of the triple top pattern. It also declined below the 25-day moving average while the Relative Strength Index has also fallen. Therefore, the pair will likely keep falling with the next key support being at 1.1500.

XAUUSD

The XAUUSD pair declined sharply after the latest consumer confidence data. It declined to a low of 1,782, below this week’s high of 1,814. Its lowest level on Tuesday was along the rising trendline that connected the lowest levels since September. It also moved above the 25-day moving average and is between the 23.6% and 38.2% Fibonacci retracement level. Therefore, a bearish breakout will be confirmed if the pair manages to move below the ascending trendline.

Daily Pivots: (S1) 0.8407; (P) 0.8421; (R1) 0.8440; More...

Further fall is expected in EUR/GBP as long as 0.8467 resistance holds. Current down trend from 0.9499 is in progress for 0.8276 key long term support next. On the upside, break of 0.8467 minor resistance will now indicate short term bottoming, and bring stronger rebound back to 55 day EMA (now at 0.8513).

In the bigger picture, price actions from 0.9499 (2020 high) are still seen as developing into a corrective pattern. Deeper fall could be seen as long as 0.8656 resistance holds, towards long term support at 0.8276. However, firm break of 0.8656 resistance would argue that a medium term bottom was already formed. Stronger rise would be seen to 0.8861 support turned resistance to confirm completion of the corrective pattern.

Daily Pivots: (S1) 1.5424; (P) 1.5466; (R1) 1.5501; More...

Intraday bias in EUR/AUD remains on the downside at this point. Sustained break of 161.8% projection of 1.6434 to 1.5907 from 1.6232 at 1.5379 will pave the way to retest 1.5250 low. Nevertheless, break of 1.5598 minor resistance will turn bias to the upside for stronger rebound to 55 day EMA (now at 1.5847).

In the bigger picture, with 38.2% retracement of 1.9799 to 1.5250 at 1.6988 intact, the down trend from 1.9799 (2020 high) is expected to resume at a later stage. Firm break of 1.5250 will target 61.8% retracement of 1.1602 (2012 low) to 1.9799 at 1.4733. In any case, sustained break of 1.6988 fibonacci level is needed to indicate long term reversal.

Daily Pivots: (S1) 1.0651; (P) 1.0677; (R1) 1.0694; More....

EUR/CHF breached 1.0656 briefly but quickly recovered, intraday bias remains neutral first. On the upside, break of 1.0764 resistance is needed to indicate short term bottoming. Otherwise, outlook will stay bearish. On the downside, firm break of 1.0656 will resume larger fall from 1.1149 to 100% projection of 1.1149 to 1.0694 from 1.0936 at 1.0481.

In the bigger picture, the rejection by 55 week EMA maintains medium term bearishness. Fall from 1.1149 (2021 high) is currently seen as the second leg of the patter from 1.0505 (2020 low) first. Hence, in case of deeper fall, we'd look for strong support from 1.0505 to bring rebound. However, sustained break of 1.0505 will resume the long term down trend from 1.2004 (2018 high). Also, medium term outlook will now be neutral at best as long as 1.0936 resistance holds.

Markets

Sentiment stayed the main driver of action on most markets. That proved to be alright for most of the day thanks to solid earnings and outright strong US (secondary) data. Risk appetite later faded somewhat but didn’t prevent the EuroStoxx600, the S&P500 or the DJI to close at a record high. EUR/USD followed overall market mood by rising initially but paring gains eventually to close sub 1.16. DXY bounced off support at 93.73, tested the 94 area but closed just below. USD/JPY again captured 114 with the yen being the underperformer across FX markets. Sterling was supported by strong CBI data and UK MinFin Sunak seen allowed to focus more spending when he’ll present the budget today. Support formed recently at around EUR/GBP 0.842 was under heavy attack but survived. Another element playing in favour of sterling were diverging yield dynamics. While inflation expectations rose further in the US and EU, they declined about 8 bps in the UK. As nominal UK yields eventually dropped 3 bps in the 10y tenor, this means real yields rose about 5 bps. In contrast, real yields (10y) in the US fell while even reaching a new record low in Germany (-2.19%). Other changes across the yield curve amounted to +0.6 bps (2y) to -4.1 bps (30y) in the US and +0.6 bps (2y) and -2.5 bps (30y) in Germany.

Chinese stocks underperform in Asian trading today. Tensions between the US and China rofstrong CBI data and UK MinFin Sunak seen allowed to focus more spendingse again after the former banned a Chinese telecom company from operating on US soil amid security concerns. The report highlights the strained relations even as USTS Yellen and Chinese VP Liu He had a constructive call just a day earlier. The yuan is resilient at USD/CNY 6.38, thanks to an overall weakish USD too. EUR/USD ekes out a small gain to just north of 1.16. The Aussie dollar rises slightly on consensus-beating core CPI (see below) which also launches short-term bond rates up to 15 bps higher. Core bonds inch lower with the front end underperforming.

The UK budget presentation is one of today’s highlights. It’s going to be a balancing act between a not-too-expansionary plan that fuels inflation even further while refraining from choking off the recovery by being too conservative. EUR/GBP in any case is still in the danger zone from a technical perspective. US data is of secondary importance for EUR/USD ahead of the ECB tomorrow. Lagarde might face some tricky questions including on the recent hawkish repositioning in EMU money markets. It’s unlikely investors will anticipate on such a potential market-moving policy meeting thus sticking to a wait-and-see approach. EUR/USD 1.153 is the first technical reference to the downside. In a similar vein, we assume no outspoken directional trading in core bonds either.

News headlines

CNB deputy governor Nidetzky said that central bankers will trade off a 50 bps rate hike against a second consecutive 75 bps move at next week’s policy meeting (Nov 4). New inflation forecasts might even point to a bolder move because of the mix of high inflation, a tight labour market, a weaker-than-expected CZK and a loose fiscal policy stance. Nidetzky says that it will be a huge success if the CNB manages to get inflation (headline and core currently 4.9% Y/Y and 5.8% Y/Y) into the 1% target band around the 2%-inflation target. In order for that to happen, he aims at reaching a neutral policy rate level 2.5%-3% by the end of the year (Dec 22) or early next year (Feb). Czech money markets currently discount a policy rate peak >3.5% in 2022. The policy rate currently stands at 1.5%. CZK remains relatively weak around 25.70 despite hawkish CNB talk and market expectations.

Headline Australian CPI rose by 0.8% Q/Q in Q3 though the annual pace fell from 3.8% Y/Y to 3% Y/Y. Importantly, a 0.7% Q/Q acceleration in core CPI brings the yearly reading to 2.1% Y/Y (from 1.6% Y/Y), the highest level since Q4 2015 and back within the RBA’s 2%-3% inflation target band. The outcome prompted a significant bear flattening of Australian yield curves. The yield on the Apr2024 Australian government bond promptly surged to 0.2%. The RBA tries to exert yield curve control by keeping rates up until that specific bond near the 0.1% policy rate. Markets already factor in RBA rate hikes next year even if the RBA pledges unchanged policy over the policy horizon (2024). The Aussie dollar slightly profits this morning with AUD/USD testing 0.7532 resistance (H1 2021 range bottom).

Market movers today

• On another slow day with regards to releases, markets will start to tune in on the ECB meeting tomorrow.
• Early Thursday morning, Bank of Japan wraps up a two-day policy meeting, where we expect no changes to the policy stance. We will look for discussions on phasing out of the pandemic programme and comments on the weak yen.
• In Sweden, the debt office presents a new budget, see more below.

The 60 second overview

US: Democrats, led by Senator Elisabeth Warren are proposing US corporations pay a minimum 15% tax rate on financial profits they report to shareholders. The move would raise USD300-400bn over the coming ten years.

Australia: Inflation, measured by the trimmed mean CPI, increased to 2.1% in Q3 and beat consensus expectations. Consequently, the market now looks for the Reserve Bank of Australia to raise its policy rate three times before then end of next year.

Energy: Energy prices have stabilised recently, notably with the price on Brent crude trading around the USD86/bbl level. OPEC meets next week after the surprise move last month to not raise output further than already planned amid the surge in oil prices. US on Tuesday said it would continue to pressure OPEC to increase oil production.

Equities: Equites continued their strong run yesterday with several new highs in indices across the continent. Interesting to note best performing sectors on a day with new all-time highs being utilities and consumer staples. This is just very different from earlier this year when the cyclical sectors typically led the market on days when indices posted news highs. In a less bullish sign, large cap outperforming small cap and VIX ended the day 0.7 points higher. In the US, Dow +0.04%, S&P 500 +0.2%, Nasdaq +0.1% and Russell 2000 -0.7%. Risk sentiment a bit more negative this morning with most Asian markets lower, Hong Kong continuing to underperform with the Hang Seng index down almost 6% year to date. US futures are flat this morning while European futures are a little weaker.

FI: 10Y US Treasury yields moved modestly lower yesterday and the curves continue to flatten from the long end. Currently, it is a bullish flattening. The move is driven by a renewed decline in real yields from the long end of the inflation-linked curve. Here, the 25Y German real yield has declined almost 40bp from the start of October relative to a 5bp decline in a 30Y German government bond. However, the market is very much in a wait and see mode, and we expect to see modest movements in bond yields ahead of the ECB meeting on Thursday.

FX: EUR/USD dropped below 1.16 amid little news yesterday. EUR/GBP moved marginally lower but remains above 0.84. EUR/SEK and EUR/NOK moved sideways.

Credit: Yesterday was a particularly positive day for the high-beta segment of credit. iTraxx Xover tightened 6.5bp (to 254bp) and Main 1bp to 49bp. HY bonds tightened 3bp while IG was unchanged.

Nordic macro

The Swedish Debt Office presents a new budget forecast. In fact, throughout the pandemic, state finances have outperformed expectations. In the May-forecast the Debt Office projected a small deficit (4bn) this year and a 65bn surplus in 2022. However, since the latest forecast monthly budget data have come in 35bn better than forecasted, so another upward revision for 2021 and 2022 seems quite likely (a first 2023 estimate is also presented). In the meantime, the Debt Office has followed the standard procedure by scaling back short term funding. This time we believe that the new borrowing forecast will show a reduction also in long term (bond-) funding. Riksbank QE has created a gradual shortage of bonds (and hence a widening of ASW-spreads), a reduced supply from the Debt Office is not likely to help.

General trend

• Hang Seng index has lagged amid the decline in the TECH index.
• Shanghai Composite has also dropped [Energy index declines, Property index continues to drop].
• Nikkei 225 has remained modestly lower; Canon’s guidance cut weighs on Topix Electric Appliances index.
• Japanese companies due to report earnings include Fanuc, Hitachi, Daiwa Securities, TEPCO, Fujitsu.
• S&P ASX 200 has moved between slight gains and losses [Woolworths weighs on the Consumer Staples index].
• Kia Motors is expected to report results later today.
• BOJ rate decision and economic forecasts are due tomorrow (Oct 28th).
• Companies due to report during the NY morning include ADP, Amphenol, Avery Dennison, Boeing, Brink’s , Bunge, Bristol-Myers, Boston Scientific, CME, GM, Garmin, Hess Corp, Hilton Worldwide, Harley Davidson, International Paper, Kraft Heinz, Coca-Cola, McDonald’s, Norfolk Southern, Old Dominion Freight Line, Penske Auto, Ryder System, Silicon Labs, Silgan Holdings, Spotify, TE Connectivity, Teva, Thermo Fisher.

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened 0.0%.
• (AU) AUSTRALIA Q3 CPI Q/Q: 0.8% V 0.8%E; Y/Y: 3.0% V 3.1%E, Trimmed mean inflation moves into RBA Target range; CPI Trimmed Mean (core) Q/Q: 0.7% v 0.5%e; Y/Y: 2.1% v 1.8%e (highest annual reading since 2015).
• WOW.AU Reports Q1 (A$) Rev 16.1B v 17.9B y/y.
• (AU) WTO to investigate China tariffs on Australia wine (TWE.AU, AVG.AU).
• (NZ) New Zealand Sept Trade Balance (NZ$): -2.2B v -2.1B prior (record deficit).

Japan

• Nikkei 225 opened -0.2%.
• (JP) Japan Industry Ministry (METI) said to be committing ¥151B for car battery R&D – Nikkei.
• (JP) Kyodo Poll: Japan LDP Party is seen as winning a stable majority.
• (JP) Japan MOF sells ¥3.0T v ¥3.0T indicated in 0.00% 2-year JGBs: avg yield: -0.0970%% v -0.115% prior; bid to cover: 4.0x v 4.24x prior.

Korea

• Kospi opened -0.1%.
• (KR) South Korea Oct Consumer Confidence: 106.8 v 103.8 prior (2nd consecutive increase, 4 month high).
• 010140.KR Confirmed plans for KRW1.3T capital raise (KRW782.5B for operating capital and KRW500B on debt).

China/Hong Kong

• Hang Seng opened -0.9%; Shanghai Composite opened -0.2%.
• (CN) China Securities Journal: Recent rally of yuan (CNY), is underpinned by the country’s strong trade surplus, is unlikely to change the two way movement of its exchange rate.
• (CN) China State Planner (NDRC) has called on companies to make active preparations to meet payments of their offshore bonds, companies also need to optimize their foreign debt structure in order to raise funds.
• (CN) China State Planner (NDRC): Will crack down on hoarding coal, asked provinces to step up oversight on coal storage.
• (CN) China State Planner (NDRC): Have recently held meeting with State Banks to hear credit policy and advice on how to move forward industrial structure adjustments.
• (CN) China State Media: The US Has upgraded its attempt to separate Taiwan from China.
• 2600.HK Reports Q3 (CNY) Net 2.23B (largest since Q4 2013) v 416.8M y/y, Rev 74.2B v 49.05B y/y.
• 486.HK Reports Q3 Alumina production 943Kt v 939Kt y/y; Sales 915Kt v 1.01Mt y/y.
• (CN) China PBOC sets Yuan reference rate: 6.3856 v 6.3890 prior.
• (CN) China PBOC Open Market Operation (OMO): Injects CNY200B in 7-day reverse repos v CNY200B prior; Net inject CNY100B v Net inject CNY190B prior.
• (CN) China PBOC Open Market Operation (OMO): Injects CNY200B in 7-day reverse repos v CNY200B prior; Net inject CNY100B v Net inject CNY190B prior.
• (CN) China Taiwan Affairs Office: US Should stop sending wrong signals on Taiwan.
• (CN) China Global Times: China President Xi will not step back an inch on Taiwan, US is opening a “new offensive” on Taiwan.
• HKEX, 388.HK Reports Q3 (HK$) Net 3.25B v 3.35B y/y, EBITDA 4.2B v 4.2B y/y, Rev 5.31B v 5.31B y/y.

Other

• (MX) Mexico Central Bank (BANXICO) Deputy Gov Heath: Most concerned with core CPI, Next rate decision will be data dependent.
• (TW) Taiwan Spokesperson Ma: Taiwan shouldn't rely on US to achieve independence.

North America

• (US) Weekly API Crude Oil Inventories: +2.3M v +3.3M prior
• GOOGL Reports Q3 $27.99 v $23.13e, Rev $53.6B (ex TAC) v $51.8Be
• MSFT Reports Q1 $2.27 adj v $2.06e, Rev $45.3B v $43.9Be
• TWTR Reports Q3 -$0.54 adj v +$0.17e, Rev $1.28B v $1.29Be; Continues to expect Rev to grow faster than expenses in 2021
• PFE VRBPAC Panel Votes (17 Yes; 0 No; 1 Abstain) In Favor to amend EUA for PFE-BNTX COVID-19 Vaccine, BNT162b2 (Comirnaty), to allow for use in children 5 through 11 years of age - VRBPAC Meeting

Europe

• (UK) Oct BRC Shop Price Index Y/Y: -0.4% v -0.5% prior
• (UK) Business Tax Relief said to be aiming to aid in green property investment, including solar panels and heat pumps - UK press
• (UK) BRC chief exec Dickinson: It is now clear that the increased costs from labour shortages, supply chain issues and rising commodity prices have started filtering through to the consumer - press

Levels as of 01:15ET

• Hang Seng -1.6%; Shanghai Composite -1.0%; Kospi -0.8%; Nikkei225 -0.4%; ASX 200 +0.1%
• Equity Futures: S&P500 +0.1%; Nasdaq100 0.0%, Dax 0.0%; FTSE100 -0.0%
• EUR 1.1605-1.1590; JPY 114.22-113.93; AUD 0.7537-0.7498; NZD 0.7177-0.7154
• Commodity Futures: Gold -0.2% at $1,789/oz; Crude Oil -0.7% at $84.06/brl; Copper -0.3% at $4.48/lb

Daily Pivots: (S1) 1.1579; (P) 1.1603; (R1) 1.1620; More...

Intraday bias in EUR/USD remains neutral first. On the upside, break of 1.1668 will target 55 day EMA (now at 1.1695). Sustained break there will be a sign that larger correction from 1.2348 has completed. Stronger rally would be seen to 1.1908 resistance for confirmation. On the downside, though, break of 1.1571 minor support will turn bias back to the downside for 1.1523 support instead. Break there will resume larger fall from 1.2348.

In the bigger picture, price actions from 1.2348 should at least be a correction to rise from 1.0635 (2020 low). As long as 1.1908 resistance holds, deeper fall would be seen to 61.8% retracement of 1.0635 to 1.2348 at 1.1289. Nevertheless break of 1.1908 resistance will revive medium term bullishness and turn focus back to 1.2348 high.

Daily Pivots: (S1) 1.3738; (P) 1.3784; (R1) 1.3811; More...

Intraday bias in GBP/USD remains neutral at this point, as consolidation from 1.3838 is still extending. Further rise is expected with 1.3646 support intact. On the upside, above 1.3833 will target 1.3912 key structural resistance. Firm break there will indicate that the correction from 1.4248 is complete with three waves down to 1.3410. Further rally would then be seen to retest 1.4248 high. However, break of 1.3646 will turn bias to the downside for retesting 1.3410 low.

In the bigger picture, the structure of the fall from 1.4248 suggests that it's a correction to the up trend from 1.1409 (2020 low) only. While deeper fall cannot be ruled out yet, downside should be contained by 38.2% retracement of 1.1409 to 1.4248 at 1.3164, at least on first attempt, to bring rebound. On the upside, firm break of 1.4376 key resistance (2018 high) will add to the case of long term bullish reversal. However, sustained trading below 1.3164 will revive some medium term bearishness and target 61.8% retracement at 1.2493.

Daily Pivots: (S1) 0.9182; (P) 0.9204; (R1) 0.9220; More....

Intraday bias in USD/CHF stays neutral for the moment. Further decline is still in favor with 0.9251 minor resistance intact. Corrective rise from 0.8927 should be complete with three waves up to 0.9367, on bearish divergence condition in daily MACD. Below 0.9148 will target 0.9017 support first, and then 0.8925 support next. On the upside, however, break of 0.9251 minor resistance will turn bias back to the upside for retesting 0.9367 instead.

In the bigger picture, the corrective structure of the rebound from 0.8925 argues that fall from 0.9471 is not completed yet. It could either be the second leg of pattern from 0.8756 (2021 low), or resuming larger down trend from 1.0237 (2018 high). We'd pay attention to the downside momentum and assess the odds later. But for now, medium term outlook will be neutral at best as long as 0.9471 resistance holds.