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Market panorama. 18 October 2017

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I. Market focus:

18/10/2017

On Wednesday, major currency pairs hovered in relatively narrow ranges during the Asian session. The news background was rather limited.

The focus of market participants was the data and events scheduled for later today. In particular, the markets await the release of the data on the UK labor market at 08:30 GMT. These data may impact significantly the expectations for further action by the Bank of England (BoE), the next meeting of which will be held on November 2. Economists’ forecast suggests that UK’s unemployment rate remained at 4.3 percent in August. But more important will be data on the change in average earnings. Economists expect the average earnings excluding bonuses to post an increase of 2.1 percent, the same pace as in the prior month, but slightly weaker reading seems possible.

In the second half of the day, volatility in the markets could be raised by the U.S. housing market statistics. Official data on housing starts and building permits will be published at 12:30 GMT. In recent months, these indicators have not demonstrated clear dynamics. Data for September, most likely, also will not be a surprise. A certain improvement is possible in October when the housing market begins to anticipate the effects of the hurricane season.

Official data on the U.S. crude oil inventories will be released at 14:30 GMT. The data are expected to show a further reduction of crude stocks. Yesterday’s report from the American Petroleum Institute (API) revealed that the U.S. crude supplies dropped by 7.13 million barrels last week, while analysts forecast only a 4.2 million barrels fall.

Elsewhere, the Fed's Beige Book, the report prepared for the regulator’s November meeting, will be released at 18:00 GMT. In the previous report, all federal reserve banks signaled about modest or moderate rates of growth of economic activity in their districts. This time, some districts may report a decrease in activity due to the hurricane season. Overall, the impact of this report on the market is not expected to be strong.

In addition, investors will pay attention to the comments of the central bankers, including the ECB’s Draghi (08:10 GMT) and the Fed’s Dudley and Kaplan (12:00 GMT).


II. The market highlights are:

  • The U.S. Labor Department reported Tuesday the import-price index, measuring the cost of goods ranging from Canadian oil to Chinese electronics, rose 0.7 percent m-o-m in September after an unrevised 0.6-percent m-o-m increase in August. That was the largest monthly rise since June 2016. Economists had expected prices to go up 0.5 percent m-o-m last month. According to the report, higher prices for both fuel (+3.9 percent m-o-m) and nonfuel (+0.3 percent m-o-m) imports contributed to the overall advance in import prices for September. Over the 12-month period ended September, import prices grew 2.7 percent. At the same time, the price index for U.S. exports increased 0.8 percent m-o-m last month, following a 0.7-percent m-o-m gain in August. That was the largest monthly gain since June 2016. The September advance was driven by rising prices for nonagricultural commodities (+1.0 percent m-o-m), while agricultural export prices (-0.7 percent m-o-m) dropped in September.

  • The Federal Reserve revealed Tuesday that the U.S. industrial production rose 0.3 percent in September, after a revised 0.9 percent m-o-m tumble in August (originally a 0.9 percent drop). That was in-line with economists’ forecast. According to the report, the continued effects of Hurricane Harvey and Hurricane Irma combined to hold down the growth in total production in September by 1/4 percentage point. Manufacturing production edged up 0.1 percent m-o-m in September, while the output of mining rose 0.4 percent m-o-m and utilities production surged 1.5 percent m-o-m. In y-o-y terms, the U.S. industrial production climbed 1.6 percent in September after rising a revised 1.2 percent in August (originally 1.5 percent).  For the third quarter as a whole, industrial production fell 1.5 percent y-o-y. The Capacity utilization for the industrial sector decreased 0.2 percentage point m-o-m in September to 76.0 percent. That was 0.2 percentage points below economists expectations and 3.9 percentage points below the long-run (1972-2016) average for the reading.

  • The National Association of Homebuilders (NAHB) announced Tuesday its housing market index (HMI) rose four points to 68 in October from an unrevised September reading of 64. That was the highest reading since May. Economists forecast the HMI to stay at 64. A reading over 50 indicates more builders view conditions as good than poor. All three HMI components recorded gains in October. Current sales measure rose five points to 75, while the indicator charting sales expectations in the next six months increased five points to 78. Meanwhile, the buyer traffic went up one point to 48. NAHB Chairman Granger MacDonald said, “This month’s report shows that home builders are rebounding from the initial shock of the hurricanes. However, builders need to be mindful of long-term repercussions from the storms, such as intensified material price increases and labor shortages.” At the same time, NAHB Chief Economist Robert Dietz noted, “It is encouraging to see builder confidence return to the high 60s levels we saw in the spring and summer. With a tight inventory of existing homes and promising growth in household formation, we can expect the new home market continue to strengthen at a modest rate in the months ahead.”

  • The U.S. Department of the Treasury released on Tuesday Treasury International Capital (TIC) data for August, which showed total net TIC inflow amounted to $125.0 billion compared to an unrevised $7.3 billion outflow recorded in July. According to the report, net foreign private inflows stood at $131.5 billion, while net foreign official outflows were $6.5 billion. Foreign residents increased their holdings of long-term U.S. securities in August; net purchases were $34.6 billion. At the same time, the U.S. residents decreased their holdings of long-term foreign securities, with net sales of $32.6 billion. Taking into account transactions in both foreign and the U.S. securities, net foreign purchases of long-term securities were $67.2 billion in August, compared to a downwardly revised $1.2 billion recorded in July (originally 1.3 billion). Economist had forecast net foreign purchases of long-term securities to amount to $14.3 billion in August.

  • Westpac Bank reported Wednesday its leading index for the Australian economy rose 0.1 percent in September after dropping 0.1 percent in August. The Bank also noted that its leading Index, which indicates the likely pace of economic activity relative to trend three to nine months into the future, slipped from -0.16 percent in August to -0.21 percent in September. Westpac’s Chief Economist, Bill Evans noted, ““The growth rate remains negative pointing to below trend momentum and a sharp turnaround from strong positive, above trend reads at the start of the year. “While the Index only gives us a glimpse of the likely momentum in the first few months of 2018 it is consistent with our view of the likely growth environment next year. Westpac is currently forecasting growth of 2.5 percent in 2018.”


III. Market Situation
Currency Market
The currency pair EUR/USD traded slightly lower. The U.S. dollar received some support on the expectations that next chair of the Federal Reserve, whom the U.S. President Donald Trump is to announce before November 3, will prove to be a more "hawkish" leader than current Chair Janet Yellen. However, the situation may change somewhat after President Trump holds a meeting with Yellen on Thursday to discuss the possibility of nominating her for a second term. Her current term ends in February of 2018. Today, the focus will be on the comments of the central bankers, including the ECB’s Draghi and the Fed’s Dudley and Kaplan, as well as the U.S. housing market statistics. Resistance level - $1.1880 (high of October 12). Support level - $1.1669 (low of October 6).

The currency pair GBP/USD traded almost unchanged, as investors were cautious ahead of the release of the UK’s labor market data (at 08:30 GMT). Economists forecast the data would show the claimant count rose by 1,000 in September after a decrease of 2,800 in August. Meanwhile, the August unemployment rate is expected to remain unchanged at 4.3 percent, and average earnings to rise 2.1 percent, the same pace as in the prior month. The pound remains under pressure after yesterday’s statement of the Bank of England (BoE) governor Mark Carney and “dovish” comments of the newest member of the BoE's monetary policy committee Dave Ramsden and Silvana Tenreyro. Carney said the central bank still had to balance the need to support job creation and growth with an inflation rate that is running above its target. “Inflation rising potentially above the 3 percent level in coming months is something that we have anticipated,” Carney said. “As a consequence, we faced a trade-off, and we still face a trade-off, between having inflation above target and the need to support, or the desirability of supporting, jobs and activity,” he added. Resistance level - $1.3337 (high of October 13). Support level - $1.3017 (low of September 6).

The currency pair AUD/USD rose slightly at the beginning of the session, helped by data from Australia, but then retreated to the opening level due to the overall strengthening of the U.S. dollar. Westpac Bank reported its leading index for the Australian economy rose 0.1 percent in September after dropping 0.1 percent in August. The Bank also noted that its leading Index, which indicates the likely pace of economic activity relative to trend three to nine months into the future, slipped from -0.16 percent in August to -0.21 percent in September. Westpac’s Chief Economist, Bill Evans noted, “The growth rate remains negative pointing to below trend momentum and a sharp turnaround from strong positive, above trend reads at the start of the year. “While the Index only gives us a glimpse of the likely momentum in the first few months of 2018 it is consistent with our view of the likely growth environment next year. Westpac is currently forecasting growth of 2.5 percent in 2018.” Resistance level - AUD0.7897 (high of October 13). Support level - AUD0.7734 (low of October 6).

The currency pair USD/JPY traded slightly higher, due to the positive dynamics of the U.S. dollar, and statement of the Bank of Japan (BoJ) board member Makoto Sakurai, who said that Japan is still far from achieving its 2 percent price target, which the BoJ must take seriously, and so it is vital for the central bank to stick with its current framework for monetary easing. "Price moves remain weak and there is a long way to go to achieve the 2 percent price target and we need to take that fact seriously," Sakurai said. He added that "the economy is improving steadily and the process of moving toward the target is improving steadily. It is vital to continue to pursue the aggressive easing policy under the current policy framework.” According to him, “if consumer prices, (which are improving steadily) rise further, the effects of powerful easy policy will strengthen as real interest rates fall in response to higher inflation rates." Market participants also closely watch the election campaigning in Japan and await the announcement of new BoJ governor, as Haruhiko Kuroda’s term ends in April. There are high chances that Mr. Kuroda will be reappointed. Resistance level - Y112.82 (high of October 10). Support level - Y111.48 (low of September 25).

Stock Market

Index

Value

Change

S&P

2,559.36

+0.07%

Dow

22,997.44

+0.18%

NASDAQ

6,623.66

-0.01%

Nikkei

21,363.05

+0.13%

Hang Seng

28,688.73

-0.03%

Shanghai

3,381.37

+0.28%

S&P/ASX

5,890.50

+0.02%


U.S. stock indexes closed mostly higher on Tuesday, with the Dow and the S&P 500 notching new record highs, as a round of upbeat earnings reports from major companies (particularly UnitedHealth (UNH) and Johnson & Johnson (JNJ)) boosted positive sentiment and extended the recent uptrend. The focus also was on the industrial production data and NAHB housing market index. The Federal Reserve revealed that the U.S. industrial production rose 0.3 percent in September, after a revised 0.9 percent m-o-m tumble in August (originally a 0.9 percent drop). That was in-line with economists’ forecast. According to the report, the continued effects of Hurricane Harvey and Hurricane Irma combined to hold down the growth in total production in September by 1/4 percentage point. Manufacturing production edged up 0.1 percent m-o-m in September, while the output of mining rose 0.4 percent m-o-m and utilities production surged 1.5 percent m-o-m. In y-o-y terms, the U.S. industrial production climbed 1.6 percent in September after rising a revised 1.2 percent in August (originally 1.5 percent).  For the third quarter as a whole, industrial production fell 1.5 percent y-o-y. The National Association of Homebuilders (NAHB) announced its housing market index (HMI) rose four points to 68 in October from an unrevised September reading of 64. That was the highest reading since May. Economists forecast the HMI to stay at 64. A reading over 50 indicates more builders view conditions as good than poor. All three HMI components recorded gains in October. Current sales measure rose five points to 75, while the indicator charting sales expectations in the next six months increased five points to 78. Meanwhile, the buyer traffic went up one point to 48. NAHB Chairman Granger MacDonald said that the report showed the home builders are rebounding from the initial shock of the hurricanes.

Asian stock indexes closed mainly higher on Wednesday, tracking Wall Street's good showing overnight, though gains were being capped as the Chinese Communist Party's Congress started. President Xi Jinping said in his speech at the opening of the event that the market would be allowed to play a decisive role in allocating resources. The Japanese market’s benchmark rose for the 12th consecutive session, hitting the highest level since November 1996, as a stable yen supported the export-oriented companies.

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


Bond Market
Yields of US 10-year notes hold at 2.30% (0 basis points)
Yields of German 10-year bonds hold at 0.36% (0 basis points)
Yields of UK 10-year gilts hold at 1.28% (0 basis points)

Commodity Markets
Light Sweet Crude Oil (WTI) futures traded lower. Crude oil for delivery in November settled at $52.05 (+0.33%). The crude oil prices rose, supported by latest data from the American Petroleum Institute (API) and concerns that tensions in the Middle East could disrupt supplies. API reported that the U.S. crude inventories dropped by 7.13 million barrels for the week ended October 13. At the same time, gasoline stockpiles rose by 1.94 million barrels, and inventories of distillates increased by 1.64 million barrels. Market participants are now awaiting weekly data on U.S. crude inventories from the U.S. Energy Information Administration (EIA).

Gold traded at $1283.90 (-0.08%). Gold prices fell slightly, in response to the strengthening of the U.S. dollar, caused by speculation about the next Federal Reserve chief. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, rose 0.05 percent to 93.53. 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 news that are expected (time GMT0)


08:10

Eurozone

ECB President Mario Draghi Speaks

08:30

United Kingdom

Average earnings ex bonuses

08:30

United Kingdom

Average Earnings

08:30

United Kingdom

ILO Unemployment Rate

08:30

United Kingdom

Claimant count

09:00

Eurozone

Construction Output

11:45

Eurozone

ECB's Peter Praet Speaks

12:00

U.S.

FOMC Member Dudley Speak

12:00

U.S.

FOMC Member Kaplan Speak

12:30

Canada

Manufacturing Shipments

12:30

U.S.

Housing Starts

12:30

U.S.

Building Permits

14:15

U.S.

ECB's Benoit Coeure Speaks

14:30

U.S.

Crude Oil Inventories

19:00

U.S.

Fed's Beige Book

23:50

Japan

Trade Balance Total



Market Focus

  • Euro Area trade balance surplus declined significantly in August
  • Consumer prices in China were up 1.6 percent on year in September,
  • US consumer sentiment surged in early October, reaching its highest level since the start of 2004 says UoM
  • Earnings Season in U.S.: Major Reports of the Week
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All posted material is a marketing communication solely for informational purposes and reliance on this may lead to loss. Past performance is not a reliable indicator of future results. Please read our full disclaimer.

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