Summary: The fear that stalked Wall Street yesterday has abated but even though advances are being made there remains much to recover.
Risk sentiment has improved since the Asia markets closed. European Central Bank President Mario Draghi’s press conference was benign. Wall Street is opening in positive territory but still has a long way to go to recover from yesterday’s meltdown. The US dollar extended European gains in New York except against the antipodean’s, which have inched higher.
The ECB did as expected and left policy and guidance unchanged. The statement repeated that Eurozone rates are staying parked until the summer of 2019. Draghi suggested that the ECB would provide improved clarity on its outlook at the December meeting when updated forecasts would be available. EURUSD touched 1.1431 before the press conference and was trading at 1.1375 at 14:00 GMT.
Sterling has been hammered again. GBPUSD triggered weak stop losses on this morning’s break of support at 1.2880 and traded at 1.2842 at 14:00 GMT. The rising risk of a ‘no-deal” Brexit is behind the move.
US September Durable Goods Orders surged 0.8% (forecast -0.9%), and Initial Jobless claims rose to 215,00, which helped support the early Wall Street gains.
Wall Street seemed pleased with yesterday’s strong earnings reports from Tesla (TSLA: Nasdaq) AMD: Nasdaq and Visa (v: NYSE) after the close yesterday and with the bounce in European equities. Better than expected US economic data, helped. The Dow Jones Industrial Average is up 0.75%, S&P 500 has gained 1.08%, and the Nasdaq has gained 1.88% as of 14:20 GMT. Microsoft (MSFT: xnas) reported earnings per share of $1.14, well above the $0.99 that was forecast, which bodes well for Alphabet (GOOGL: Nasdaq) and Amazon (AMZN: Nasdaq) quarterly reports at the close of business today.
Next week is going to be busy. FX volatility may surge thanks to a couple of major central bank policy meetings, month-end portfolio rebalancing flows, and the US nonfarm payrolls report. The Bank of Japan policy meeting is Wednesday, and the Bank of England follows on Thursday.
Sterling could get a little wobbly around Monday’s UK budget announcement. The BoE is expected to stand pat, handcuffed by the dilemma around Brexit. Eurozone GDP is expected to be unchanged (0.4% quarter-on-quarter), but Wednesday’s inflation data may cause a stir if higher than expected, especially since European Central Bank president Mario Draghi suggested that the December meeting may give increased clarity on the ECB’s outlook.
Wednesday is month-end which means portfolio rebalancing flows. The substantial decline in US equity indices this month suggest large buying of US dollars, providing current levels hold. The week ends with US nonfarm payrolls data; inclement weather in October may distort the results.