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Market panorama. 19 October 2018

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I. Market focus

At the beginning of the final session of the week, the focus of market participants was on the Japanese and Chinese macroeconomic data released overnight. Japanese statistics were represented by an inflation report, which continued to indicate that inflationary pressure in the country remains well below the central bank’s target level. However, the increase in the consumer price index in September was lower than a month earlier. As a result, the yen was under pressure, which was rather limited.

Chinese data included reports on GDP, industrial production, investment in fixed assets and retail sales. The data on the first two indicators turned out to be worse than expected, while the latter two indicators exceeded forecasts. Although statistics on China’s GDP and industrial production turned out to be weaker than the average forecasts, the paces of growth of these indicators still remain substantially higher than in other countries. However, the fact of a slowdown in growth had a negative impact on market sentiment.

The global stock markets saw another sell-off on Thursday. The stock indexes were weighed down by weak quarterly reports from a number of companies, which heightened concerns about the effect of tariffs on corporate profitability. In the morning, the stock markets demonstrated a correction. The statements of the People’s Bank of China, which tried to reassure investors with verbal interventions, contributed to the improvement of sentiment in the Asian stock markets. According to the regulator, the recent fluctuations in the country's stock market were caused by investor sentiment, but they do not reflect the country’s economic fundamentals, which, despite increased external pressure, continues to be strong. The central bank also announced its intention to consider a number of measures to ease pressures on financial companies.

On Friday, the main macroeconomic data will be statistics on inflation and retail sales in Canada, which will be released at 12:30 GMT. In addition, attention should be paid to the comments of the Bank of England’s (BoE) governor Mark Carney, scheduled for 16:10 GMT.

The stock market participants continue to assess the quarterly reports of companies, as the third-quarter earnings season rolls. Today, the focus was on the reports of American Express Company (AXP) and PayPal Holdings (PYPL), which were posted after the close of Wednesday’s trading, as well as Honeywell (HON) and Procter & Gamble (PG), which will be released before the market opens.


II. The market highlights are:

The data from the Labor Department revealed on Thursday the number of applications for unemployment benefits fell more than expected last week, pointing to tight labor market conditions. According to the report, the initial claims for unemployment benefits decreased 5,000 to 210,000 for the week ended October 13. Economists had expected 212,000 new claims last week. Claims for the prior week were revised upwardly to 215,000 from the initial estimate of 214,000. Meanwhile, the four-week moving average of claims rose 2,000 to 211,750 last week.


The Ministry of Internal Affairs and Communications reported on Thursday that Japan’s consumer prices rose 1.2 percent y-o-y in September after a 1.3 percent y-o-y gain in the prior month. Individually, the fuel, light and water charges (+3.7 percent y-o-y) rose the most last month, followed by prices for transportation and communication (+2.1 percent y-o-y), food (+1.8 percent y-o-y), culture and recreation (+1.0 percent y-o-y) and medical care (+1.1 percent y-o-y). On the contrary, prices for furniture and household utensils (-1.0 percent y-o-y) fell the most. Meanwhile, the nationwide core consumer price gauge, which excludes volatile fresh food prices, rose 1.0 percent y-o-y in September, following a 0.9 percent y-o-y advance in August. That was the highest reading since February and in-line with economists’ forecast.


The data released by China's National Bureau of Statistics (NBS) on Friday revealed that the Chinese economy expanded at an annual rate of 6.5 percent in the third quarter of 2018. That was below a 6.7 percent growth recorded in the previous quarter and economists’ forecast of 6.6 percent y-o-y increase and marked the slowest pace in almost a decade. In q-o-q terms, GDP grew 1.6 percent, slower than a 1.8 percent q-o-q expansion in the three months prior but in-line with economists’ expectation. The NBS also announced that the growth pace of the country’s fixed asset investment was 5.4 percent y-o-y in January to September period, following a 5.3 percent y-o-y rise in January to August. That was above economists’ forecast of a 5.3 percent y-o-y gain. Meanwhile, the official data on China's industrial production missed market expectations. According to the NBS, the country’s industrial production increased 5.8 percent y-o-y in September, compared with a 6.1 percent y-o-y surge in the prior month and economists’ expectations for 6.0 percent y-o-y growth. That was the weakest growth in industrial output since February 2016. However, China’s retail sales beat estimates in September. According to the official data, retail sales increased 9.2 percent y-o-y last month, accelerating from August's 9.0 percent y-o-y surge and beating economists’ forecast of a 9.0 percent y-o-y gain.


III. Market Situation
Currency Market
The currency pair EUR/USD rose slightly due to a partial profit-taking after the previous day’s decline. Meanwhile, the U.S. dollar continued to strengthen gradually, receiving support from the Fed's propensity to tighten monetary policy further. Today, market participants will pay attention to the U.S. data on existing home sales for September. According to economists’ forecast, existing home sales probably decreased to 5.30 million units last month from 5.34 million units in August. Resistance level - $1.1620 (high of October 16). Support level - $1.1431 (low of October 9).

The currency pair GBP/USD consolidated near the opening level, as investors took a breather after the previous session’s tumble in the pair, which was caused by disappointing retail sales data from Britain, the broad strengthening of the U.S. currency, and the Brexit-related news. With an almost empty economic calendar in the UK ahead, investors will focus on the dynamics of the U.S. currency and the general market sentiment toward risky assets, as well as the comments of the Bank of England (BoE) governor Mark Carney. Resistance level - $1.3257 (high of October 12). Support level - $1.2921 (low of October 4).

The currency pair AUD/USD rose moderately, supported by higher commodity prices. Investors also digested mixed data from China, Australia’s major trading partner. The Chinese statistics on GDP for the third quarter and industrial production for September were worse than expected, while statistics on investments in fixed assets and retail sales exceeded forecasts. Although data on China’s GDP and industrial production turned out to be weaker than the average forecasts, the paces of growth of these indicators still remain substantially higher than in other countries. Resistance level - AUD0.7240 (high of September 28). Support level - AUD0.7041 (low of October 5).

The currency pair USD/JPY demonstrated a moderate increase due to the strengthening of the U.S. dollar. The pair’s performance was also influenced by inflation data from Japan. The Ministry of Internal Affairs and Communications reported that Japan’s consumer prices rose 1.2 percent y-o-y in September after a 1.3 percent y-o-y gain in the prior month. Meanwhile, the nationwide core consumer price gauge, which excludes volatile fresh food prices, rose 1.0 percent y-o-y in September, following a 0.9 percent y-o-y advance in August. That was the highest reading since February and in-line with economists’ forecast. Resistance level - Y113.37 (high of October 9). Support level - Y111.62 (low of October 15).

Stock Market

Index

Value

Change

S&P

2,768.78

-1.44%

Dow

25,379.45

-1.27%

NASDAQ

7,485.14

-2.06%

Nikkei

22,532.08

-0.56%

Hang Seng

25,594.67

+0.55%

Shanghai

2,550.47

+2.58%

S&P/ASX

5,939.50

-0.05%


U.S. stock indexes closed sharply lower on Thursday, weighed down by frustrating quarterly earnings from industrials sector components and disappointing news overseas. Focus also was on weekly jobless claims and the Conference Board's leading economic index for September. The data from the Labor Department revealed the number of applications for unemployment benefits fell more than expected last week, pointing to tight labor market conditions. According to the report, the initial claims for unemployment benefits decreased 5,000 to 210,000 for the week ended October 13. Economists had expected 212,000 new claims last week. The Conference Board's leading economic index increased 0.5 percent in September after increasing an unrevised 0.4 percent in August. That was in-line with economists’ forecast.

Asian stock indexes closed mixed on Friday, after a plunge on Wall Street overnight and mixed China’s data. China’s equities outperformed, helped by verbal intervention by the country’s central bank, which assured it’ll keep financial risks under control.

European stock indexes are expected to trade mixed in the morning trading session.


Bond Market
Yields of US 10-year notes hold at 3.18% (0 basis points)
Yields of German 10-year bonds hold at 0.43% (+1 basis points)
Yields of UK 10-year gilts hold at 1.40% (0 basis points)

Commodity Markets
Light Sweet Crude Oil (WTI) futures traded higher. Crude oil for delivery in November settled at $68.97 (+0.47%). The crude oil prices rose moderately, correcting after yesterday's fall. In addition, investors were preparing for the release of weekly data on the U.S. oil rig count from Baker Hughes (17:00 GMT).


Gold traded at $1,228.30 (+0.23%). Gold prices rose slightly, on the back of increased demand for safe-haven assets due to another decline in global stock markets. However, further growth of gold prices was limited by the positive dynamics of the U.S. currency. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, rose 0.05 percent to 95.95. Since gold prices are tied to the dollar, a stronger dollar makes the precious metal more expensive for holders of foreign currencies.

IV. The most important scheduled events (time GMT 0)



08:00

Eurozone

Current account

08:30

United Kingdom

PSNB

12:30

Canada

Retail Sales

12:30

Canada

Retail Sales ex Autos

12:30

Canada

Consumer price index

12:30

Canada

Bank of Canada Consumer Price Index Core

13:00

U.S.

FOMC Member Kaplan Speak

14:00

U.S.

Existing Home Sales

15:30

United Kingdom

BOE Gov Mark Carney Speaks

16:00

U.S.

FOMC Member Bostic Speaks

17:00

U.S.

Baker Hughes Oil Rig Count


Market Focus

  • Earnings Season in U.S.: Major Reports of the Week
  • Swiss Producer and Import Price Index fell in September 2018 by 0.2% compared with the previous month
  • Fed's Quarles Calls for Predictable, Gradual Policy Normalization
  • Trump Says He Doesn't Want to Fire the Fed Chair. It Isn't Clear If He Could
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