One week out from the US Presidential Election, a Frankenstorm bearing down on the east coast and in particular New York, more corporate earnings and non-farm payrolls on Friday night and this could be an interesting week for markets.
Looking back on Friday we see that the US GDP print of +2% annualised was better than expected by the market but that it was surprisingly boosted by defence spending while investment and exports both fell. Also worth noting was that the price deflator was higher than expected at 2.8% which had a dampening effect on the overall number as GDP is quoted in “real” or inflation adjusted terms. But it is still all about earnings in the stock market for the moment and this better than expected data was overshadowed by last weeks results from companies such as Apple and Amazon in the US and Samsung, Ericcson, Renault and Publicis in other jurisdictions.
I was particularly interested in the Publicis result given it is a global advertising bellwether. Reuters reported:
Publicis brought more bad news for the advertising sector – seen as a bellwether for the global economy – reporting a marked slowdown in its organic growth in the third quarter a day after rival WPP cut revenue outlook.
It remains my core thesis that the weak economic outlook is and will continue to feedback into revenues and earnings over coming quarters and that this will put a lid on stocks. Last week the Dow dropped 1.8%, the S&P 500 fell 1.5% and the NASDAQ was down 0.6%. As you can see in the chart here even though the S&P 500 has broken the recent uptrend line it has plenty of support all the way down to 1350 and it would only be a break of this level that would really sour the outlook. The 200 day moving average sits around 1374 this week and should be solid support along with the second trendline support.
At the close of play Friday the S&P 500 recovered from the worst of its losses to fall just 1 point of 0.07% to 1411.94. The Dow was up 0.03% and the NASDAQ rose 0.06% recovering with Apple of its lows as it seems to be searching for a bottom after its recent sell off. In Europe the FTSE closed up 0.03%, the DAX up 0.44% and the CAC rose 0.69%. Madrid was off a little falling 0.03% and it is worth noting as we move toward the Catalonian regional election in November and a sense that it is a mini-referendum on a separate Catalonian nation that Spain is going to remain in the news.
When we look at the price action Friday in Treasuries and Bunds it is clear that risk aversion is rising as equities fall. Treasuries to 1.74% to close well below the high on Thursday of 1.81% with Bunds catching a bid as well down to 1.53%. But the Australian dollar is not being impacted at all as it rallied strongly back toward 1.04 with a high of 1.0385 before dropping back a little to 1.0357 this morning.
The fact that the recent swoon in equities and increase in global risk aversion not to mention the poor outlook for the global economy and corporate earnings is having no downward impact on the Aussie speaks volumes of the troubles elsewhere on the globe and the fact that investors at present don’t have a credible alternative to holding their assets in Australia and Aussie dollars.
Elsewhere in FX markets the euro recovered from steep early losses with a low around 1.2880 before rallying back 1.2944 this morning. The Pound likewise made a low of 1.6080 before it too lifted back to 1.6115 in early Monday trade. Those of us who were bullish USDJPY got hit hard on Friday with a sharp reversal and a very ugly technical pattern. Having made a high around 80.35/40 USDJPY fell to a low around 79.50 on expectations for a BoJ easing (as counter intuitive as that is) and a USD that just couldn’t hold onto its gains on Friday.
On commodity markets, crude oil looks like it is trying to base over the last 3 days of trade with Friday’s low the same as Wednesday’s trade low at $84.80 Bbl – the down trend remains intact however. Likewise the gold price looks to be trying to form a base just under $1700 oz in the last few days of trade last week. If you draw a lint through both of these price moves however you see that the US dollar and its inability to head higher and hold its gains is likely as much a cause as any other at the moment.
Lets have a look at some Met4 charts from my AVATrade platform.
EUR/USD: The EUR fell below the uptrend line in trade Friday but found solid support at 1.2880. It seems the EUR’s rally though is more about the US dollar than the EUR itself when we look across other markets but on that front the USD has been unable to hold its gains. This rally kept the uptrend intact for the moment on the dailies.
On the shorter term charts both the 1 and 4 hour charts suggest that EUR could rally back toward 1.2970:
AUD/USD: No change from Friday – AUD has been choppy within a range recently even though that range has been a fairly decent one of around 170 points. 1.04 remains resistance with support at 1.0335. A break of 1.04 or 1.0252 is required to push AUD substantially either way:
Data: This is a huge week for data with nothing in Australia today but Personal Consumption data tonight in the US and the Dallas Fed manufacturing index will be interesting along with Spanish retail sales.
Here is how the markets looked this morning.
Twitter: Greg McKenna . He is the Chief Investment Officer of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.
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