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Market movers today

• Mostly tier 2 data out today. Although not normally a market mover, August US house prices is an interesting release given that the pandemic rally has been followed by some deceleration in prices over the summer. We will also keep an eye on the Richmond Fed manufacturing index.

The 60 second overview

Lower Ifo: The closely watched German business confidence index dropped for a fourth month in a row to a six month low as the global supply disruptions continue to weigh on the German manufacturing sector where capacity utilization is falling despite a healthy order book. The on-going political coalition talks and the inflation outlook create uncertainty and both factors might have contributed to lower optimism. The main index dropped from 98.8 to 97.7 (expected: 98.0). The 'expectations' index dropped from 97.3 to 95.4 (expected: 96.6).

Oil market: Oil has seen strong support over the last couple of months due to modest OPEC supply and not least strong demand from the recovery in traveling and 'fuel switching' from natural gas to fuel oil and other fossil fuels in electricity production. Yesterday, Brent traded above USD 86.5 a barrel. Today, the market will be watching US stock data and tomorrow talks between the EU and Iran that eventually could pave the way for more oil from Iran. But for now the market is looking ahead to the OPEC+ meeting next week. The comments from the cartel so far indicate that OPEC+ is still reluctant to put more oil on the market than already agreed.

Inflation expectations: German 10Y break-evens rose to 1.93% yesterday and with support to oil it seems like just a matter of time before the 2%-level is reached. Wage growth will be important for the European inflation outlook the coming years. Read more in Research Euro Area - German wages: what to watch in 2022 that we published yesterday.

Covid-19: The number of Covid-19 cases and death tolls especially in Eastern Europe and emerging markets where vaccination rates generally are low are rising rapidly. Romania now has the highest daily death toll in the world of 19 deaths per million a day. Financial Times has a story on the rising infection rates in Central and Eastern Europe.

FI: Italy was the main outperformer yesterday versus Bunds after S&P's surprise move to put its rating on BBB stable outlook (from BBB negative) on Friday night, with the BTPt-Bund spread tightening 2.4bp, in what was otherwise a generally muted trading session while we wait for the main event this week, the ECB meeting. 10s30s steepened 3bp after more or less two weeks of consecutive flattening.

FX: Amid little news, EUR/USD dropped briefly below 1.16 yesterday, but ended the day just above. EUR/GBP declined as well but remained above 0.84. EUR/NOK moved marginally lower ending the day just below 9.70 while EUR/SEK moved sideways just below 10.00.

Credit: A slightly mixed day in credit where iTraxx Xover tightened marginally (0.3bp) to 260bp and Main 0.2bp (to 50.2bp). HY bonds widened 3bp and IG tightened 0.5bp.

Equities continued higher yesterday with MSCI world ending shy of the all-time high levels from September 6. Despite markets pushing higher the last weeks it has been without any clear style leadership. Energy sector of course standing out as the clear winner but defensives and cyclicals basically on par the last month. Yesterday in US, consumer discretionary standing out as heavyweight automaker Tesla rose 12% on massive order from Hertz. Major indices in US yesterday, Dow +0.2%, S&P 500 +0.5%, Nasdaq +0.9% and Russell 2000 +0.9%. The positive sentiment continuing this morning with Asian equities advancing. Nikkei outperforming while Chinese markets are mixed as property developers weighing on Hang Seng following another missed bond payment from a smaller developer. European and US futures pointing to a green opening today.

General Trend

• Nasdaq FUT rise amid tech earnings.
• Nikkei has extended gain [Heavyweights rise after prior declines (Fast Retailing and Softbank Group); Topix Shipping index rises amid earnings speculation; Panasonic has supported the Electric Appliances index].
• Japanese companies due to report earnings include Canon Inc and Nidec.
• Hang Seng has pared the opening gain [Property index declines].
• HK Property Developers remain under the microscope; Modern Land China defaulted after failed debt exchange, Agile Group tries to reassure investors; China State Planner (NDRC) to meet in Beijing with certain property developers on Tues (Oct 26th).
• Shanghai Composite ended morning trading fractionally higher [Property index continued to lag].
• S&P ASX 200 has pared gain [Energy, Resources, Consumer Discretionary and Financial indices outperform].
• Hynix reported mixed results.
• AU Q3 CPI data due on Wed (Oct 27th).
• Companies due to report during the NY morning include Asbury Automotive, Archer-Daniels Midland, Arch Resources, Armstrong World Industries, Centene, Dana, Ecolab, GE, Corning, Hasbro, JetBlue, Eli Lilly, Lockheed Martin, 3M, Paccar, PulteGroup, Polaris, Pentair, Raytheon, Sherwin-Williams, S&P Global, UPS, Waste Management, Xerox.

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened +0.1%.
• FCG.NZ Raises FY21/22 forecast milk price to NZ$7.90-8.90; Affirms FY21/22 EPS NZ$0.25-0.40/shr.
• OSH.AU Reports Q3 Total production 6.9 MMBOE v 7.3 y/y; Rev $408.8M v $189M y/y.
• CWN.AU Victoria Govt issues conduct report: Company not suitable to hold casino license in Melbourne. Will be permitted to operate under oversight.
• (AU) Australia Trade Min Tehan: Prepared to supply coal to China; Will welcome other visa holders by Christmas.
• (NZ) Reserve Bank of New Zealand (RBNZ) Gov Orr: Climate change could lead to a prolonged period of faster inflation that requires a monetary policy response, current price increases are proving more persistent.

Japan

• Nikkei 225 opened +1.1%.
• (JP) Bank of Japan (BOJ) has extended deadline for FX Swap agreement with China PBOC to Oct 25, 2024.
• (JP) Japan PM Kishida: Digitalization will be catalyst for economic growth; Will draft proposals on economic priorities in Nov.
• (JP) According to recent poll PM Kishida’s ruling Liberal Democratic Party is likely to keep substantially more than half the seats in parliament in this weekend’s. general election

Korea

• Kospi opened +0.6%.
• (KR) SOUTH KOREA Q3 PRELIMINARY GDP Q/Q: 0.3% V 0.6%E; Y/Y: 4.0% V 4.3%E.
• 000660.KR Reports Q3 (KRW) Net 3.32T (largest since 2018) v 1.1T y/y; Op 4.17T v 1.30T y/y; Rev 11.8T v 8.13T y/y.
• (KR) South Korea Fin Min: Oil tax to be cut by 20% for 6-month; To lower LNG Tariff to 0%.

China/Hong Kong

• Hang Seng opened +0.4%; Shanghai Composite opened %.
• (CN) China State Planner (NDRC): Considering floating coal prices based off of benchmark pricing; Studying mechanism to stabilize coal prices over long term.
• (CN) China Securities Journal (CSJ): PBOC liquidity injections show less prospects for RRR cut [in line].
• 1107.HK Due to unexpected liquidity issues, repayment of principal and interest amount of notes was not met on Oct 25th for 12.85% senior notes due 2021; continued halt in trading.
• (CN) China PBOC sets Yuan reference rate: 6.3890 v 6.3924 prior.
• (CN) China PBOC Open Market Operation (OMO): Injects CNY200B in 7-day reverse repos v CNY200B prior; Net inject CNY190B v Net inject CNY190B prior.
• (CN) China Vice Premier Liu He and US Treasury Sec Yellen spoke on Tuesday (Oct 26th) on Economy, and bilateral and global cooperation.
• (HK) Hong Kong Chief Exec Lam: To remove most coronavirus quarantine exemptions.

North America

• FB Reports Q3 $3.22 v $3.20e, Rev $29.0B v $29.6Be; Increases share repurchase program by $50B; Notes significant uncertainty ahead of Q4 and continued headwinds from Apple's iOS 14 changes.
• (US) Reportedly SEC has convinced other regulators and will get go ahead to make moves to crack down on stablecoin market – press.
• TSLA Hertz orders 100K Tesla by end of 2022 with new EV charging infrastructure across global ops (US morning).
• (US) San Pedro Ports (Located in Los Angeles and Long Beach California) to impose dwell time charges for ocean carriers of $100/day.
• AAPL DOJ reportedly has accelerated its two-year-old antitrust probe of Apple and is likely to bring case - The Information.

Europe

• (FR) France President Macron approval rating -2ppt to 40% in latest Odoxa poll.
• (UK) Chancellor of the Exchequer Sunak (Fin Min) expected to announce a salary rise next year for public sector workers, will also raise National Living Wage from £8.91 to £9.50/hr - UK press.
• (FR) France to use "go slow" strategy for customs checks for UK lorries heading into Christmas season in retaliation over fishing dispute - UK press.
• (RU) Russia Energy Min Novak: Expect OPEC+ to up oil output by 400K bpd in November (as previously agreed) - press.
• UBSG.CH Reports Q3 Net $2.28B v $2.1B y/y; Rev $9.13B v $8.94B y/y, to give strategic update Feb 1, 2022.

Levels as of 01:15ET

• Hang Seng -0.3%; Shanghai Composite +0.1%; Kospi +0.8%; Nikkei225 +1.8%; ASX 200 +0.0%.
• Equity Futures: S&P500 +0.3%; Nasdaq100 +0.5%, Dax +0.2%; FTSE100 +0.1%.
• EUR 1.1612-1.1597; JPY 113.99-113.68; AUD 0.7518-0.7484; NZD 0.7177-0.7158.
• Commodity Futures: Gold -0.1% at $1,805/oz; Crude Oil +0.1% at $83.86/brl; Copper +0.2% at $4.53/lb.

Daily Pivots: (S1) 0.7468; (P) 0.7487; (R1) 0.7509; More...

AUD/USD is staying in consolidation from 0.7545 temporary top and intraday bias remains neutral. In case of another retreat, downside should be contained by 0.7377 support to bring another rally. On the upside, break of 0.7454 will resume the rise from 0.7105 to 161.8% projection of 0.7105 to 0.7477 from 0.7169 at 0.7771.

In the bigger picture, with 0.6991 cluster support (38.2% retracement of 0.5506 to 0.8006 at 0.7051) intact, we're seeing price action from 0.8006 as a correction only. That is, up trend from 0.5506 low would resume after the correction completes. In that case, main focus will be 0.8135 key resistance (2018 high). Sustained break there will carry larger bullish implications. However, sustained break of 0.6991 will argue that the whole medium term trend has indeed reversed.

DOW and S&P 500 eked out new record highs again overnight. But Asian markets are not following, with the exception of rally in Nikkei. Activities in the currency markets are generally quiet. Nevertheless, Aussie is strengthening with other commodity currencies. Yen and Swiss Franc are weak, followed by Euro. Dollar is mixed together with Sterling.

Technically, the retreats in Yen crosses slowed notably, as USD/JPY, EUR/JPY and GBP/JPY are all drawing support from 4 hours 55 EMA respectively. Our focus will now on be whether Yen crosses would rebound from current levels. In that case, we'll see if USD/JPY would have another take on 114.69 resistance quickly.

In Asia, at the time of writing, Nikkei is up 1.85%. Hong Kong HSI is down -0.38%. China Shanghai SSE is down -0.11%. Singapore Strait Times is down -0.16%. Japan 10-year JGB yield is up 0.0018 at 0.102. Overnight, DOW rose 0.18%. S&P 500 rose 0.47%. NASDAQ rose 0.90%. 10-year yield dropped -0.020 to 1.635.

EUR/AUD downside breakout, EUR/CAD and EUR/GBP to follow?

While Euro looks weak in some crosses, most are still bounded in very tight range, except EUR/AUD, which breaks through 1.5456 temporary. It remains to be seen if that's a signal of more broad based selling in Euro, or buying in Aussie.

EUR/AUD breaks to the downside today as fall from 1.6434 resumes. Next focus is 161.8% projection of 1.6434 to 1.5907 from 1.6232 at 1.5379. Sustained trading there would pave the way back to retest 1.5250. low.

At the same time, attention will also be on 1.4317 temporary low in EUR/CAD. Firm break there will resume larger down trend towards 100% projection of 1.5783 to 1.4580 from 1.5096 at 1.3839.

Meanwhile, break of 0.8420 temporary low in EUR/GBP will resume the medium term down trend towards 0.8276 key support next.

US Yellen frankly raised issues of concern to China

US Treasury Secretary Janet Yellen held a virtual meeting with Chinese Vice Premier Liu He yesterday. In a statement, the US side said they "discussed macroeconomic and financial developments", and "frankly raised issues of concern".

On the Chinese side, it described in a statement that the meeting as "pragmatic, candid and constructive". China expressed concerns on US tariffs, sanctions and urged fair treatment of Chinese companies.

Both sides agreed to further communications.

On the data front

Japan corporate service price index rose 0.9% yoy in September, versus expectation of 1.0% yoy. European calendar is empty today. US will release house price index and new homes sales. But main focus will be on consumer confidence.

AUD/USD Daily Report

Daily Pivots: (S1) 0.7468; (P) 0.7487; (R1) 0.7509; More...

AUD/USD is staying in consolidation from 0.7545 temporary top and intraday bias remains neutral. In case of another retreat, downside should be contained by 0.7377 support to bring another rally. On the upside, break of 0.7454 will resume the rise from 0.7105 to 161.8% projection of 0.7105 to 0.7477 from 0.7169 at 0.7771.

In the bigger picture, with 0.6991 cluster support (38.2% retracement of 0.5506 to 0.8006 at 0.7051) intact, we're seeing price action from 0.8006 as a correction only. That is, up trend from 0.5506 low would resume after the correction completes. In that case, main focus will be 0.8135 key resistance (2018 high). Sustained break there will carry larger bullish implications. However, sustained break of 0.6991 will argue that the whole medium term trend has indeed reversed.

Economic Indicators Update

While Euro looks weak in some crosses, most are still bounded in very tight range, except EUR/AUD, which breaks through 1.5456 temporary. It remains to be seen if that's a signal of more broad based selling in Euro, or buying in Aussie.

EUR/AUD breaks to the downside today as fall from 1.6434 resumes. Next focus is 161.8% projection of 1.6434 to 1.5907 from 1.6232 at 1.5379. Sustained trading there would pave the way back to retest 1.5250. low.

At the same time, attention will also be on 1.4317 temporary low in EUR/CAD. Firm break there will resume larger down trend towards 100% projection of 1.5783 to 1.4580 from 1.5096 at 1.3839.

Meanwhile, break of 0.8420 temporary low in EUR/GBP will resume the medium term down trend towards 0.8276 key support next.

In larger degree context, the rally from October 1, 2021 low in S&P 500 Futures (ES) is unfolding as a 5 waves impulse Elliott Wave structure. Up from October 1 low, wave 1 ended at 4365.75 and pullback in wave 2 ended at 4267.50. Wave 3 is in progress with internal subdivision as a 5 waves in lesser degree. Up from wave 2 low, wave ((i)) ended at 4421.50 and wave ((ii)) pullback ended at 4316.90.

The 1 hour chart below shows wave ((ii)) as the starting point. Up from there, wave ((iii)) ended at 4551.50 and pullback in wave ((iv)) ended at 4515.25. Expect the Index to end wave ((v)) soon with a few more marginal highs, then it should complete wave 3 in higher degree. The Index should then pullback in wave 4 to correct cycle from October 5 low before the rally resumes again. Pullback in wave 4 should unfold in 3, 7, or 11 swing. In the 1 hour chart below, we show a simple 3 waves zigzag pullback as the internal subdivision. Near term, as far as wave ((ii)) low pivot at 4316.90, expect pullback to find support in 3, 7, or 11 swing for further upside.

S&P 500 Futures (ES) 60 Minutes Elliott Wave Chart

Key Highlights

• GBP/USD settled above the key 1.3700 resistance zone.
• A major bullish trend line is forming with support near 1.3740 on the 4-hours chart.
• EUR/USD failed to gain strength for a move above 1.1650.
• Gold price climbed above the $1,800 resistance level.

GBP/USD Technical Analysis

The British Pound gained momentum after it broke the 1.3650 resistance against the US Dollar. GBP/USD cleared the 1.3750 resistance zone to move into a positive zone.

Looking at the 4-hours chart, the pair even traded above the 1.3800 level. A high was formed near 1.3830 and the pair settled above the 100 simple moving average (red, 4-hours).

Recently, there was a downside correction below the 1.3800 level. The pair corrected lower below the 23.6% Fib retracement level of the upward move from the 1.3566 swing low to 1.3831 high.

It is now consolidating above the 1.3750 support zone and the 200 simple moving average (green, 4-hours). There is also a major bullish trend line forming with support near 1.3740 on the same chart.

The next major support is near 1.3710. It is close to the 50% Fib retracement level of the upward move from the 1.3566 swing low to 1.3831 high. A close below the 1.3700 level might spark a larger decline. In the stated case, the pair could decline towards the 1.3650 level.

On the upside, an immediate resistance is near the 1.3800 level. The next major resistance is near the 1.3830 level, above which the pair might rise towards the 1.3920 level.

Looking at EUR/USD, the pair attempted an upside break above the 1.1650 resistance, but it failed and corrected lower.

Economic Releases

• US Housing Price Index for August 2021 (MoM) - Forecast +1.3%, versus +1.4% previous.
• US New Home Sales for Sep 2021 (MoM) – Forecast +1.5% versus +1.5% previous.

STOCKS

Some recovery is seen in equities globally. Dow and Dax seems to hold well above 35500 and 15400 and could be headed towards 36000 and 15800/900 respectively. Nikkei and Shanghai also look bullish for a rise to 29500 and 3700/800 on the upside. Nifty and Sensex seems to be holding above crucial supports at 18000 and 60000 respectively and while a above that, a slow and steady rise looks possible.

Dow (35741.15, +64.13, +0.18%) has risen and is heading towards the immediate resistance at 36000. Note that 36000 is a strong resistance which can hold and produce a fall towards 35500-35000 in the coming sessions.

DAX (15599.23, +56.25, +0.36%) has held within the range of 15800-15400 mentioned previously. View remains bullish to see a test of 15800/900 in the coming sessions while above 15400.

Nikkei (29100.57, +500.16, +1.75%) has risen sharply today from a low of 28472.55.The range of 28000-29500 remains intact. A strong break above 29500 is needed for the view to be bullish towards 30000.While below 29500,it can continue to consolidate between 28000-29500 for a few more sessions.

Shanghai (3611.15, +1.29, +0.036%) has risen above 3600 and while the bounce sustains, view remains bullish to test the level of 3700/800 eventually. Watch interim possible resistance at 3675.

Nifty (18125.40, +10.50, +0.058%) made a low of 17968 yesterday but bounced well to close above 18100. The level of 18000 needs a close watch today to see if it holds and keeps the bullish view of seeing 18600/800 intact or gives way for the index to again fall lower. A strong break if seen below 18000 can trigger a sharp fall towards 17400 levels (looks less likely).

Sensex (60967.05, +145.43, +024%) closed over the support of 60000 yesterday. Note that 60000 is a strong support from where the index can bounce towards 61000/62000 again on the upside. Any break below 60000, if seen would be bearish.

COMMODITIES

Commodities trade higher. Gold has broken above 1790 and could be bullish towards 1820-1840 while above 1790. Silver may head towards 25. Copper has bounced and while above 4.45, a rise to 4.60/70 is possible. Crude prices may head higher towards 86/87 on WTI and towards 87.36-90 on Brent before any reversal is seen.

Brent (86.21) and WTI (83.21) have dipped slightly bit overall remains higher with scope of rising towards 87.36-90 on Brent while above immediate support at 85. WTI test 86/87. Immediate view is bullish.

Gold (1805.10) has broken above 1790 and risen well and while above 1790, there is scope for a rise to 1820-1840 in the near term.

Silver (24.52) has 25 as immediate resistance and while that holds, a dip to 24-23.50 is possible on the downside. Only a break above 25 if seen will open up further chances of a rise towards 26-27 again in the longer run. Watch price action near 25.

Copper (4.5450) has bounced from 4.45 and while that holds, a rise towards 4.60/70 is possible in the near term. On the downside there is still scope for a fall towards 4.35/30 which will come into force on a break below 4.45.

FOREX

Dollar Index rose and Euro fell after the German IFO data release yesterday. This has kept Dollar Index above 93.50 and Euro below 1.1665/75 reducing immediate chance of a fall to 93 and a rise to 1.17/1.1710 respectively. Watch price action to see if the current move sustains. EURJPY has started to rise and while above 131.00/50, view is bullish for a rise to 133. Aussie and Pound are bullish for the near term. USDCNY may hold above 6.3750 and rise to 6.41/44 in the near term. Only a break below 6.3750 will turn the view to become bearish. A stronger crude (refer to commodities section above) and a weak Euro may be negative for the Rupee and could take USDINR towards 75.20/25, the immediate resistance above 75.

Dollar Index (93.91) rose yesterday from interim support near 93.50 and while above 93.50, there is scope for a rise to 94.50 on the upside in the near term. Immediate view is bullish while above 93.50.

Euro (1.1598) fell back sharply from immediate resistance zone of 1.1665-1.1675 after the German IFO data release yesterday. This has reinforced a possible decline to 1.1550-1.1500 if it does not immediately bounce back to 1.1625+ levels today. Watch price action to see if the fall sustains below 1.16 or rises back higher over the next couple of sessions. Chances of a rise to our expected levels of 1.17-1.1710 seems reduced for now.

EURJPY (132.15) bounced from 131.86 and can move up towards 132.50-133 on the upside. While above 131.00/50, view is bullish.

Aussie (0.7505) has moved up from 0.7450 and has scope to test 0.7550.

Pound (1.3769) seems to be holding well above trend support near 1.3735/30 mentioned yesterday and a bounce is likely to take the exchange higher towards 1.38-1.3850 slowly in the near term.

Dollar-Yen (113.87) continue the bounce seen yesterday. It seems to have resumed the uptrend towards 114-114.50 and is bullish for the near term while above 113.

USDCNY (6.3818) has dipped slightly but holds above 6.3750. If it manages to hold above 6.3750, we may expect a rise back to 6.41/44 in the near term else a fall towards 6.36/34 cannot be negated in the medium to long term. Watch price action near 6.3750.

USDINR (75.0825) is likely to rise towards resistance near 75.20/25 on the upside and could be supported by a strong Crude and weak Euro. Watch price action near 75.20/25 to see if the pair faces rejection or manages to break on the upside.

INTEREST RATES

The US Treasury Yields have dipped at the near-end (2Yr and 5Yr) while the far-end (10Yr and 30Yr) remains stable. The yields at the far-end have still chances to move up further from here. The German yields have key resistances ahead that can cap the upside and trigger a fresh fall in the coming days. The 10Yr GoI remains stable and can consolidate at higher levels in the range of 6.3%-6.4% before seeing a fresh fall. The 5Yr continues to remain mixed within its broad 5.66%-5.76% sideways range.

The US 2Yr (0.44%) and the 5Yr (1.18%) yields have dipped slightly while the 10Yr (1.64%) and the 30Yr (2.09%) remains stable. Our view remains the same. There are still chances for the yields to test 1.75% (10Yr) and 2.2% (30Yr) while they remain above 1.6% (10Yr) and 2% (30Yr). As mentioned yesterday, the 10Yr will have to break below 1.6% to give an initial sign of weakness and then extend the fall below 1.5% in order to negate the chances of 1.75% and a rise to 2% levels going forward.

The German 2Yr (-0.68%) and the 5Yr (-0.46%) have dipped further while the 10Yr (-0.12%) remain stable. The 30Yr (0.26%) has bounced back slightly but is unlikely to sustain higher and can keep the bearish view intact of falling to 0.1%-0% on a break below 0.2%. The 10Yr has resistance in the -0.1%/-0.05% resistance zone which can cap the upside and drag the yields down to -0.2% and lower in the coming weeks.

The Indian 10Yr GoI (6.3503%) seems to be getting support near 6.33%. It can oscillate in a range of 6.3%-6.4% for some time. The broader view remains bearish while below 6.4% to see 6.2% and lower levels. A strong break above 6.4% is needed to move further up towards 6.45%-6.5%.

The 5Yr GoI (5.7218%) continues to remain mixed and trades stable within the broad 5.66%-5.76% range. 5.7%-5.76% could be a narrow range of trade for now within the broad 5.66%-5.76% range.

US Treasury Secretary Janet Yellen held a virtual meeting with Chinese Vice Premier Liu He yesterday. In a statement, the US side said they "discussed macroeconomic and financial developments", and "frankly raised issues of concern".

On the Chinese side, it described in a statement that the meeting as "pragmatic, candid and constructive". China expressed concerns on US tariffs, sanctions and urged fair treatment of Chinese companies.

Both sides agreed to further communications.

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