CALENDAR HIGHLIGHTS

Monday: CN Caixin Services PMI, GE Industrial Production, EU Sentix Investor Confidence, US Secretary of State Pompeo visits China, (US & CA bank holiday, NYSE open, treasury market closed)

Tuesday: GE Trade Balance, US IBD TIPP Economic Optimism, BoE Broadbent, BoC Wilkins, Fed’s Williams speak

Wednesday: CN M2 Money Supply, New Loans, FR Industrial Production, UK GDP, Manufacturing & Industrial Production, Goods Trade Balance, Construction Output, NIESR GDP Estimate, GE 10-yr bond auction, US PPI, Wholesale Inventories (F), Treasury Currency Report, API Inventories, 10-yr bond auction, BoE Haldane, Fed’s Bostic, RBA Ellis speak

Thursday: JN PPI, 30-yr bond auction, FR CPI (F), UK RICS House Price Balance, BoE Credit Conditions Survey, ECB Monetary Policy Meeting Minutes, US CPI, Weekly Jobless Claims, DoE Inventories, 30-yr bond auction, BoE Vlieghe speaks

Friday: AU RBA Financial Stability Review, CN Trade Balance, Foreign Direct Investment, GE CPI (F), EU Industrial Production, US Import Prices, University of Michigan Sentiment (Prelim), Federal Budget Balance, Fed’s Bostic & Quarles speak, IMF & World Bank Annual Meeting, Citi, JP Morgan, Wells Fargo earnings

Saturday: IMF & World Bank Annual Meeting

Hope you enjoyed your break…

After returning from a week-long holiday the PBOC wasted no time in addressing the persistent slowdown in the Chinese economy by cutting the Reserve Requirement Ratio (RRR) for the fourth time this year, effective 15th. Oct. The move is not entirely surprising as economic data in the mainland has been weakening with further deterioration in the country’s manufacturing sector clearly evident last week where new export orders fell to the lowest level in two-years.

PBOC cut RRR

Looking forward, my expectation is that trade tensions with the US will return back to the forefront now that Golden Week has passed, and the release of Chinese trade balance and foreign direct investment on Friday will give the latest insight as to health of the domestic situation in China.

In the short-term, any further pressure in the Chinese markets in the context of a firmer USD, amid rising US yields, may open up downside opportunities for the AUD in the days to come.

AUD chart

America gets its way…

It looks like Trump has been busy, and with only four weeks now until the US mid-terms his persistent calls for more Saudi oil supply appear to be paying off. The result has been comments from the Saudi Crown Prince that the country’s spare capacity could be tapped ‘immediately’ in order to counteract a decline in Iranian exports. Not only this the US is also said to be in talks with Iranian-oil buyers over waivers, according to Bloomberg.

Oil chart

More troubles ahead for Italy…

Despite last week’s concession in reducing the budget deficit beyond 2019, concerns over Italy have been reignited this morning. The move comes after comments from deputy prime minister Di Maio and his views on anti-austerity, coupled with controversy over migration, this time via Instagram. As such, Italian yields are on the rise again while the EUR remains under pressure.

Italy yields

Moving forward this will be one of the main topics for the week ahead as the deputy premier will take the budget plan to parliament on Wednesday, before the expected draft submission to the EU Commission by Oct. 15th.

EURUSD chart

Aside from Italian politics, the ECB are also scheduled to release their latest monetary policy minutes on Thursday. Although historically these tend to be rather dull, the context of QE set to finish at the end of the year, and the subsequent rate hike anticipated in Q3 2019, details of the governing council’s conversations may carry some interest for market participants.

Backdoor meeting this week for Brexit…

My expectations for any break through in Brexit talks is low for the week ahead by there is one key meeting I will be monitoring closely, that of DUP leader Arlene Foster’s and EU’s Michel Barnier on Tuesday.

The issue on how to deal with the Northern Irish border is pivotal to the success of negotiations at this stage and technically Wednesday is the last chance the EU can take on board new information before the summit next week in order to fit within the time frame of UK proposals.

Cable chart

Away from the politics, there are three members of the Bank of England’s MPC speaking on Tuesday (Broadbent), Wednesday (Haldane) and Thursday (Vlieghe) this week.

BoE hawks doves

Relief in Brazil…

Reading most banks interpretation of the Brazilian election on Sunday the majority anticipate further upside for local assets as Bolsonaro’s stronger than expected victory, capturing some 46.2% of the vote, just short of a majority. As such, the process moves to a second round on Oct. 28th with expectation now that this is no more than a formality for the far-right leader.

According to Bloomberg, his economic polices remain largely unclear but he has enlisted an adviser who is in favour of privatisations and overhauling the pension and tax systems.

Brazil election

Earnings season returns…

Hard to believe that it’s that time of year again already, with Citi, JPMorgan and Wells Fargo due to kick off the latest round of large-cap US earnings on Friday. According to FactSet, the estimated earnings growth rate for the S&P 500 is 19.2% in Q3 2018, and the Financials sector is expected to report the second highest (YoY) growth of all eleven sectors at 33.8%. For those interest in more details you can access a full break down HERE.

Equity chart

Have a good week ahead.

Regards,

Anthony

Photo by chuttersnap on Unsplash

Anthony Cheung
Anthony is a leading market commentator with over a decade of experience accumulated as Head of Market Analysis at a leading news and analysis organisation, and now a Director of Amplify Trading.