FOMC, Advance GDP, Nonfarm Payrolls and Brexit all key this week

FOMC, Advance GDP, Nonfarm Payrolls and Brexit all key this week

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  Weekly Outlook Monday 28thOctober 2019 by Richard Perry, Market Analyst Forex and CFDs are high risk leveraged products that can result in losses greater than your initial deposit and you should therefore only speculate with money you can afford to lose. FX and CFD trading are not suitable for everyone. Please ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such transactions. You should first carefully consider your investment objectives, level of experience, and risk appetite and only invest funds you are prepared to lose entirely. For our full risk warning, please go to the end of this report. Key Economic Events WHEN: Wednesday 30th October, 1330BST LAST: 1.75% / 2.00% FORECAST: CUT -25bps to 1.50% / 1.75% Impact: When the FOMC meeting on Wednesday, the consensus forecasts suggest a third 25 basis points cut in three meetings. “Insurance cuts” as a counter measure to the threat of the global economic slowdown infecting into the US economy seem to be ready to turn into something more considerable. Slowing consumer data (both hard and soft) will be a concern for the FOMC even though it is broadly split on the monetary policy outlook. US Treasury yields could be anchored or lower as yield differentials hit the outlook for the dollar. A cuts could have a significant impact across major markets. Date Time Country Indicator Consensus Last Tue 29th Oct 1400GMT US CB Consumer Confidence 127.4 125.1 Wed 30th Oct 1230GMT US GDP (Q3 Advance) +1.7% +2.0% Wed 30th Oct 1400GMT Canada Bank of Canada monetary policy 1.75% 1.75% Wed 30th Oct 1800GMT US FOMC monetary policy CUT -25bps to 1.50% / 1.75% 1.75% / 2.00% Thu 31st Oct 0100GMT China Manufacturing PMI 49.8 49.8 Thu 31st Oct 0500GMT Japan Bank of Japan monetary policy No change -0.10% No change -0.10% Thu 31st Oct 1100GMT Eurozone Inflation (HICP flash – headline / core) +0.8% / +1.0% +0.8% / +1.0% Thu 31st Oct 1230GMT US Core PCE +1.7% +1.8% Fri 1st Nov 1230GMT US Non-farm Payrolls / Average Hourly Earnings 90,000 / +3.0% 136,000 / +2.9% Fri 1st Nov 1400GMT US ISM Manufacturing 48.8 47.8 T: +44 (0) 20 7036 0850 │ E: [email protected] │ W: hantecfx.com 1N.B. Reuters data where possible. Please note daylight saving time shift , all times now Greenwich Mean Time (GMT) Macro Commentary At what stage do insurance cuts turn into an all out easing cycle? When the FOMC first cut the Fed Funds rates in July the move was described by Fed chair Powell “to provide insurance against ongoing risks”. However, this “insurance” cut was again reiterated in Powell’s press conference as the Fed cut by another 25 basis points cut in September. If these cuts are really an insurance move then the Fed will be done. However, a third cut in a row can hardly be argued to be insurance, but instead as part of what would be an ongoing easing cycle. The US economy is slowing. Not as much significantly as the case in other major economies such as Germany and the UK, however, it has undoubtedly lost traction. There are signs that the manufacturing contraction is beginning to impact into the vital consumer sector. 70% of the US economy is household consumption, so with retail sales falling for the fist time since February, in addition to sliding trends forming on confidence indicators, Consumer Confidence and Michigan Sentiment. So although last month’s Fed dots were very mixed, and there were two hawkish dissenters, Powell has a tricky decision to make this week. Fed funds futures are pricing in over 90% probability of a rate cut, so it would come with considerable surprise if the Fed sat on its hands. However, three cuts in three meetings moves more from “insurance” to full blown easing cycle. The dollar has already lost its outperformance recently. Signs of hope in the trade dispute is dollar negative, but also the Fed’s easing has hit it. This could be a new trend setting in. Must Watch for: FOMC monetary policy US Fed Funds rate US interest rates have been cut in the last two meetings. The 10 year Treasury yield turning below the Fed Funds rate has historically called the last two easing cycles.
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  Weekly Outlook Monday 28thOctober 2019 by Richard Perry, Market Analyst Foreign Exchange There has been a far more muted look to major forex pairs in the past week or so. Risk appetite has waned slightly as the positive newsflow surrounding the US/China trade dispute has dried up (or simply been priced in now), whilst Brexit fatigue/uncertainty has taken hold. Subsequently, two big movers, EUR and GBP have begun to retrace. GBP has been a massive mover higher in the past few weeks on hopes that Brexit could finally be delivered, but the move is now fading. The EU has granted a 3 month extension to the Article 50 deadline (to 31st January), but near to medium term political uncertainty that comes with an increasingly likely general election will be a drag on GBP over the coming week. We should see Cable back into $1.2600/$1.2700. However, GBP is also now underpinned as the prospect of a no deal Brexit is dramatically reduced by Johnson’s agreement with the EU. We see the longer term prospects for GBP are still for a decisive rally as there is finally some real light at the end of the tunnel. EUR was pulled higher by the Brexit hope and has also seemingly found a more positive configuration now. However, again there is a degree of near term slippage, but this is something that for now looks to be more of an opportunity than a risk. Amidst all this we have seen a mild move back into safe havens, as JPY and USD have clawed back some losses. Further to this, the rallies on AUD and NZD have lost momentum. However we see these moves as near term. It means that moves this week could be crucial to these medium term risk improvements. WATCH FOR: Further Brexit newsflow impacting on GBP. FOMC and payrolls will be key for USD T: +44 (0) 20 7036 0850 │ E: [email protected] │ W: hantecfx.com 2 FX Outlook GBP/USD Watch for: The support band around the 23.6% Fib level will be a key gauge as the corrective slip tests a key breakout. Outlook: The unwind of a huge bull move is underway. As Cable begins to form a new sequence of lower highs and lower lows, there is a basis of support between $1.2785/$1.2820 which will be key this week. The old June high of $1.2785 is a basis of support with the 23.6% Fibonacci retracement at $1.2720. Momentum is unwinding but is contained so far. A deeper correction would arise from a breach of the support at $1.2785 which would open the 50% Fib at $1.2700 and the $1.2580 old September high. EUR/USD Watch for: The recovery uptrend under pressure needs to build support this week Outlook: The near term retreat to a near four week uptrend support means the euro recovery is being seriously tested this week. We will know more about whether this is a near term unwind or a deeper correction. The reaction to the support band $1.1060/$1.1075 will be importance as a breach would drag the pair back towards the $1.0990 support again. Momentum indicators are unwinding but as yet there is nothing too aggressive about the unwind and looks to be part of a bull trend retracement rather than a failure.
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  Weekly Outlook Monday 28thOctober 2019 by Richard Perry, Market Analyst Equity Markets Equities remain positively configured as the gains of recent weeks have either held or been built upon. Indices took off at the prospect of a more positive US/China trading relationship. Positive comments from both sides continue and should therefore ben sustained into the mid-November APEC meeting. The UK political stalemate has also at least managing to achieve a significant reduction in “no deal” Brexit potential which is risk positive. An export heavy DAX (a key beneficiary of both these factors) has been the sustainable outperformer. The DAX now eyeing the next resistance at 13,200 a key support band 12,600/12,700 needs to hold this week. FTSE 100 has been the laggard, but will this now change? FTSE is impacted the prospect of a Brexit deal, but a sharp GBP recovery means that FTSE 100 lags on the negative correlation. However, political uncertainty dragging opens the potential for a general election. Although GBP would be hit by this, conversely FTSE 100 would become an outperformer. With a rather mixed US earnings season to date the S&P 500 has, as yet, been unable to push on for a test of the 3028 all-time high. US earnings have not disappointed, but it is interesting to see that the usual low-balling of analyst estimates has not provided the usual rocket fuel for the index. Blended earnings remain around -4.7% (lower than the end-September expectation of -4.0%). Also the average earnings beat of +2.5% is well below the 5 year average of c. 5%. Although the bulls are failing to get the uplift they might have hoped, they will still be looking to defend a support band 2975/3000 with corrections seen as a chance to buy. WATCH FOR: Brexit newsflow for FTSE and DAX. US earnings (Google, Apple, Facebook) for Wall Street T: +44 (0) 20 7036 0850 │ E: [email protected] │ W: hantecfx.com 3 DAX Xetra Watch for: A test of 13,200 is eyed as 12,600/12,700 is a near term buy zone. Outlook: It was a crucial move on the DAX when the market broke decisively above 12,495/12,655 to new 2019 highs recently. The consolidation of this breakout has driven momentum into strong configuration and any retreat will now be eyed by the bulls as an opportunity. The recent moves have left a support band 12,600/12,700 as a basis of a buying opportunity now and it would take a correction deep below 12,495 to abort bull control this week. The next resistance is the key mid-2018 highs around 13,200. FTSE 100 Watch for: A move above 7205/7250 pivot range opens the September high again Outlook: The bulls seemed to be having a stronger outlook again as the market moved through the pivot range resistance 7205/7250. Momentum improving again, but is this enough to sustain a bull run to test the key September high at 7440? Already there are signs that the bulls are going to struggle. Compared to other major markets which have been testing 2019 highs, FTSE is a massive laggard. Momentum signals remain stuck in ranging configurations, even if there is a more positive bias moving into this week. The bulls will therefore look to use weakness towards 7250 as a chance to buy. However, the prospect of a medium term breakout is some way off. Index Outlook
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  Weekly Outlook Monday 28thOctober 2019 by Richard Perry, Market Analyst Other Assets: Commodities & Bonds For almost two weeks, gold had been marooned and waiting for the catalyst for its next move. Two factors play into gold moves, risk and the outlook for US rates/USD. Risk aversion began to seep back into the market with the heightened UK political risk, helping gold higher. This was a minor shift across other markets however, it combined with more disappointing US data which makes a Fed rate cut increasingly likely. Gold has taken on a near term upside break, a move massively confirmed on silver too. Don’t forget, when they move, silver is like gold on steroids. Oil has jumped higher in recent sessions in a move which really does point towards a building recovery. The improved prospects of a deal between the US and China on trade helps to improve the outlook for global oil demand and has tipped the balance once more in favour of the bulls. Interestingly, the oil futures curve is fluctuating around the front months, but still mostly in backwardation (i.e. broadly a negative bias). Will this begin to turn around now the spot price is breaking higher? Bond yields have been showing some interesting moves recently. Sharp rises on 10 year Bund and Gilt yields have come as the US 10 year yield has consolidated. US data disappointments (especially on consumer indicators) increase the pressure on the Fed to cut. This is playing out negatively on differentials for USD. WATCH FOR: US Consumer Confidence, FOMC and Non-farm Payrolls all key. Brexit developments too. T: +44 (0) 20 7036 0850 │ E: [email protected] │ W: hantecfx.com 4 Gold Watch for: Holding above $1500 is key this week as the lower high at $1518 is eyed. Outlook: The run of positive candles and sessions puts the bulls on the front foot for a test of key resistance at $1518 this week. The October high is the second of two key lower highs which formed the old downtrend, however with the breakout above $1500 along with more positive configuration on momentum, we see a change in the near term outlook, which could develop into something more bullish on a medium term basis this week. The market is still trading broadly within a $100 trading band $1458/$1557 but the bulls are looking far more promising suddenly. A closing breach of $1518 would put them in control for a test of the range highs again at $1557. Markets Outlook Brent Crude oil Watch for: A recovery continues to build and corrections are a chance to buy now. Outlook: The improved outlook that has been developing throughout October took a leg higher last week. A small uptrend channel is forming now and this is helping to develop stronger momentum and a move for near term corrections to be used as a chance to play the recovery. As such then the support at $58.25 is now a key higher low, but there is also a band of support which is a mini “buy zone” this week between the 23.6% Fib (of $71.95/$56.15) at $59.90 and the breakout at $60.75. The next key move would be above the 38.2% Fib level at $62.20 to open 50% Fib around $64.00.
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  Weekly Outlook Monday 28thOctober 2019 by Richard Perry, Market Analyst T: +44 (0) 20 7036 0850 │ E: [email protected] │ W: hantecfx.com 5 Risk Warning for Financial Promotions This report is issued by Hantec Markets Limited, who is authorised and regulated by the Financial Conduct Authority (FCA) in the UK, No. 502635. The report is prepared and distributed for information purposes only. Trading in Foreign Exchange (FX), Bullion and Contracts for Differences (CFDs) is not be suitable for all investors due to the high risk nature of these products. Forex, Bullion and CFDs are leveraged products that can result in losses greater than your initial deposit. The value of an FX, Bullion or CFD position may be affected by a variety of factors, including but not limited to, price volatility, market volume, foreign exchange rates and liquidity. You may lose your entire initial stake and you may be required to make additional payments. Please ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such transactions. Before deciding to enter into FX, Bullion and/or CFD trading, you should carefully consider your investment objectives, level of experience, and risk appetite. You should only invest in FX, Bullion and/or CFD trading with funds you are prepared to lose entirely. Therefore, only your excess funds should be placed at risk and anyone who does not have such excess funds should completely refrain from engaging in FX and/or CFD trading. Do not rely on past performance figures. If you are in any doubt, please seek further independent advice. This report does not constitute personal investment advice, nor does it take into account the individual financial circumstances or objectives of the clients who receive it. All information and research produced by Hantec Markets is intended to be general in nature; it does not constitute a recommendation or offer for the purchase or sale of any financial instrument, nor should it be construed as such. All of the views or suggestions within this report are those solely and exclusively of the author, and accurately reflect his personal views about any and all of the subject instruments and are presented to the best of the author’s knowledge. Any person relying on this report to undertake trading does so entirely at his/her own risk and Hantec Markets does not accept any liability. Trust Through Transparency Hantec House, 12-14 Wilfred Street, London SW1E 6PL T: +44 (0) 20 7036 0850 F: +44 (0) 20 7036 0899 E: [email protected] W: hantecfx.com