Equities mixed on stimulus hopes, Chinese PPI + Brexit
remains the watchword but equity markets are still looking for direction. Bonds
have been sold ahead of the ECB meeting, nudging yields a tad higher with
market participants fearing Draghi will leave the market wanting more.
US stocks were mixed but essentially traded flat. SPX slipped a touch
while the Dow eked a gain. Buyers are trying to figure out whether last
week’s upside break through long term resistance was the real thing or a bull
trap. Risk will be constrained by ongoing fears about global macro slowing and
trade wars. The bias was tilted more pro-risk last week after confirmation of
high level trade talks. However we’re only ever a tweet away..
taken a leg lower as China’s factory gate prices turned south. China’s produce
price index declined 0.8% in August amid falling demand for finished goods. The
fear is not just that it signals weakness in domestic and overseas demand, but
that China is exporting deflation by cutting prices and making it even harder
for central banks like the ECB to achieve their inflation goals. Could be a
tough session in Europe.
Gold has list its bullish stance with a retreat to month lows
indicating bears have tried wrest control for now. Speculative long positioning
had become extremely stretched in the last few days and price action had failed
to deliver further upside so a retreat fits the narrative. However, with prices
recovering around $1490-92, it suggests this is only a near-term pause in the
longer term rally. Eye support now around $1469, the 50-day moving
average. If we go that low we’re starting to rethink the bullish case.
sterling will now face several weeks of less constant Brexit related news flow.
But it will remain ever present and pervade every bit of price action for GBP
Johnson’s defeat last night means an election before Oct 31st is off the table.
With Parliament prorogued it seems unlikely we will see meaningful direction
towards no-deal before Oct 14th. This at least may give bulls some comfort the
pound will be offered support in the low 1.20s. It does rather look like there
is a floor under sterling for the rest of the month and into October. The
question is whether the current momentum is enough to driveGBPUSD north
of 1.25 in the near term. Despite prorogation the pound will of course be
susceptible to headline risk. Particularly watch for signs the government is
working to circumvent parliament and not seek an extension at the key European
summit in mid Oct.
stalled around 1.2350 we’ll be looking to see whether bulls can mount another
assault on 1.2380 before 1.2520 comes into view. At send time cable was up to
1.2370 and looking to break yesterday’s high at 1.23845.
EURUSD has attained a slight bullish bias ahead of the ECB meeting on
Thursday. With markets fearing they’ve gotten ahead of themselves, the euro may
firm a touch more before the announcement. Much depends on broader risk
appetite – if haven flows dominate the dollar will be bid. As we detailed in
our preview, the bar is set very high for a very accommodative stimulus
package, which could leave the market disappointed. Euro gains are evidence of
Oil seems to be sustaining its rally out of the symmetrical
triangle on the upside, touching on $58 for WTI. Next step is the July 11th
swing high at $61. The arrival of Prince Abdulaziz bin Salman has got traders
thinking the Saudis will go harder on efforts to raise prices. The Kingdom is
in a hurry to drive prices higher ahead of the Aramco IPO and because they of
course need to balance the budget. His arrival does suggest they weren’t happy
with progress and want to do more to push up crude prices before the IPO, in
order to get as high a valuation as possible. Whether or not he can achieve
anything his predecessor could not is the $2bn question, but for now traders
believe it signals an even sharper focus on prices.
On tap today – Apple to
unveil new iPhones later today. It’s not expected to be a major refresh as we
look forward to 5G devices next year.The recent
acquisition of Intel’s smartphone-modem business for $1bn shows Apple is
serious about this. However, this is not expected until 2020, leaving the upcoming
upgrade cycle of iPhone 11 to likely feature only modest changes. Consumers
will likely be holding on and waiting for 5G models next year, which could
weigh on guidance and expectations.