After the strong run higher on risk appetite in recent days, there are a few hints of caution creeping into today’s session. This may just be a stalling ahead of further positive US corporate earnings but may hint at potential profit-taking on the way. The Bank of Canada is the main calendar focus.
- Main drivers: Mixed to mild risk negative sentiment; US earnings season still strong; Australian inflation mixed; UK Budget today; US Durable Goods and Bank of Canada monetary policy later.
- Mixed to mildly positive sentiment: USD clawed back some recent losses yesterday and Wall Street pulled back from session highs into the close last night. This left Asian markets mixed overnight and European indices are starting cautiously today. There is a mixed outlook on major forex and commodities are pulling back too.
- AUD outperforming on Australian inflation: slightly mixed numbers on Australian inflation, with the decline on headline CPI, however, the “Trimmed Mean” and “Weighted” inflation metrics (looked at by the RBA) were above expectation [Supportive for AUD]
- US earnings positive again: Big tech earnings (from Alphabet, Microsoft and Twitter) seem to be supportive overnight, with the shares mixed to positive in after-hours trading [Supportive for Wall Street]
- President Biden is said to be close to naming the next Fed chair: This is still likely to be a re-appointment of current Fed chair Jerome Powell. [Supportive for Wall Street]
- UK Budget today: UK Chancellor Sunak (finance minister) will deliver the Autumn Statement, but with most of the headline-grabbing announcements already leaked (raising the minimum wage, pay increases for public sector workers) the market impact is likely to be limited. However, there is still potential for a surprise. Sunak may increase Capital Gains Tax and make borrowing changes [Potential GBP volatility]
- Central bank speakers: No Fed speakers – FOMC in the “Blackout Period”.
- Economic Data:
US Durable Goods Orders at 1230GMT expected to show core ex-transport orders increased by +0.4% in September (following +0.2% in August)
Bank of Canada monetary policy decision at 1400GMT no change to the headline rates of +0.25% expected, but a cut of asset purchases to C$1bn per week is expected (from C$2bn per week).
- Broad outlook: Risk positive bias is turning a little more cautious now.
- Forex: USD has shown signs of building support in recent sessions.
EUR/USD resistance is mounting under 1.1665 as a pivot barrier develops around 1.1620. The market is starting to sell into strength. We look to sell under 1.1580.
· GBP/USD resistance is growing around 1.3830 and the recovery uptrend is being tested. A break under support at 1.3735 would break the recovery. Under 1.3700 opens for 1.3570/1.3600.
· AUD/USD recovery continues today with another bounce off the strong uptrend. Above 0.7545 opens upside once more. The importance of support at 0.7450 is growing.
- Commodities: signs of fatigue in the recovery of precious metals, whilst oil is consolidating around crucial resistance.
Gold failing again around $1810 and a move back below $1790/$1800 suggests that the market is not ready yet to break clear of the tight consolidation band $1750/$1810. We, therefore, remain neutral.
Silver after failing at $24.85 resistance and falling over yesterday, the key support band $23.75/$24.00 is being tested. How the market reacts around the uptrend and support area will determine whether the bulls have lost control.
Brent Crude oil with the market falling again to overcome key resistance under $86.95, there are a few signs of fatigue in the bull move. Support at $83.55 remains key to the continuation of the run higher.
- Indices: the strong run higher, driven by Wall Street is stalling slightly today. We are still buyers into supported weakness.
S&P 500 futures still looks to be the strongest of the major indices, but a pullback from yesterday’s high of 4590 may begin to show with profit-taking. We are still looking to buy into weakness. Initial support at 4529/4551.
DAX signs of a near-term pullback after a strong run higher. We look to buy into any weakness with support growing around 15,600/15,700.
FTSE 100 is consolidating the breakout. We look to buy into any near-term pullback with support between 7215/7246.