I. Market focus
The news background in the financial markets was rather limited at the beginning of the new week is limited. By the beginning of the European session, only Japanese data on all industry activity index were released, which, however, remained almost unnoticed. Of particular interest was the Chinese government’s plan to cut personal income taxes, which was announced on Saturday. According to the draft plan of the Ministry of Finance and the State Administration of Taxation, the taxpayers who have expenditures related to such items as children's education, adult education, treatment of serious diseases, livelihood of seniors, housing loan interest and apartment rents will enjoy additional deductions to their taxable incomes next year. The final version of this tax deduction regime is planned to be unveiled by the end of this year. The size of the announced tax cuts turned out to be greater than expected, having a positive effect on market sentiment. As a result, the main Chinese stock index, the Shanghai Composite Index, surged by 4 percent on Monday.
The individual income tax reductions in China, of course, is a positive factor for the markets, but not the main one. A key source of concern remains the trade confrontation between the United States and China, which has not yet shown signs of weakening. Moreover, the Axios reported the U.S. President Donald Trump has no intention of de-escalating trade tensions with China, but “wants them (China) to suffer more” from tariffs. Thus, it is hardly worth expecting a significant breakthrough in the negotiations between Trump and Chinese President Xi Jinping on the sidelines of the G20 summit in Buenos Aires on November 29.
Monday's economic calendar does not contain important macroeconomic data releases that can have a strong influence on the dynamics of markets.
The stock market participants continue to assess the quarterly reports of companies, as the third-quarter earnings season rolls. Today, the focus will be on the reports of Kimberly-Clark Corp. (KMB) and the Halliburton Co. (HAL), set to be released before the market opens.
II. The market highlights are:
Statistics Canada reported on Friday that the Canadian retail sales edged down 0.1 percent m-o-m to CAD50.76 billion in August, following a 0.2 percent m-o-m gain in July (revised from an initially reported 0.3 percent m-o-m increase). The result missed economists’ forecast, suggesting a 0.3 percent m-o-m advance for August. According to the report, sales were down in seven of 11 subsectors, representing 52 percent of total retail trade. The main contributors to the August decline were lower sales at gasoline stations (-2.0 percent m-o-m), which more than offset gains at motor vehicle and parts dealers (+0.8 percent m-o-m). Excluding motor vehicle and parts dealers, retail sales dropped 0.4 percent m-o-m in August. In y-o-y terms, Canadian retail sales surged 3.6 percent in August, following a revised 3.5 percent rise in July (originally a 3.7 percent climb).
Another report from Statistics Canada revealed that the country’s consumer price index (CPI) fell 0.4 m-o-m in September, following a 0.1 percent m-o-m decrease in the prior month. On the y-o-y basis, Canada’s inflation rate surged 2.2 percent last month after a 2.8 percent gain in August. Economists had predicted inflation would be flat m-o-m but rose 2.7 percent y-o-y in September. According to the report, prices went up in all eight major components in the 12 months to September. The transportation index rose at a slower pace in September (+3.9 percent y-o-y) than in August (+7.2 percent y-o-y), but remained the biggest contributor to the y-o-y increase in consumer prices. Meanwhile, the closely watched the Bank of Canada's core index rose 1.5 percent y-o-y in September after increasing 1.7 percent y-o-y in the previous month. That was the lowest y-o-y gain since June and missed economists’ forecast of 1.8 percent y-o-y.
The National Association of Realtors (NAR) announced on Friday that the U.S. existing home sales fell 3.4 percent from August to a seasonally adjusted rate of 5.15 million in September from a revised 5.33 million in August (originally 5.34 million). Economists had forecast home resales increasing to a 5.30 million-unit pace last month. According to the report, single-family home sales stood at a seasonally adjusted annual rate of 4.58 million in September, down from 4.74 million in August, while existing condominium and co-op sales were at a seasonally adjusted annual rate of 570,000 units in September, down 3.4 percent from last month and 5.0 percent from a year ago. The NAR’s chief economist Lawrence Yun noted the rising interest rates had led to a decline in sales across all regions of the country. “This is the lowest existing home sales level since November 2015,” he said. “A decade’s high mortgage rates are preventing consumers from making quick decisions on home purchases. All the while, affordable home listings remain low, continuing to spur underperforming sales activity across the country.”
The weekly report from Baker Hughes, which was released on Friday, showed that the number of active U.S. rigs drilling for oil jumped by four to 873 during the week ended October 19. In the prior week, the oil-rig count climbed by eight. Meanwhile, the total active U.S. rig count, which includes oil and natural-gas rigs, also increased by four to 1,067, as the gas rig count rose by one to 194 last week, and the miscellaneous rig count decreased by one to 0. The U.S. rig count is up 154 rigs from this time last year when it stood at 913.
III. Market Situation
The currency pair EUR/USD consolidated near the opening level, due to the stabilization of the U.S. dollar and the lack of new catalysts. With almost empty economic calendars in the EU and U.S. ahead, traders will focus on the dynamics of the U.S. currency and the general market sentiment toward risky assets. Gradually, the center of investors’ attention will shift to the U.S. GDP data, scheduled to be released on Friday. Economists expect the U.S. GDP rose 3.3 q-o-q in the third quarter, following a 4.2 percent q-o-q growth in the second quarter, as some components that maintained an impressive pace in the second quarter lost steam in the third quarter. Resistance level - $1.1621 (high of October 16). Support level - $1.1432 (low of October 9 and 19).
The currency pair GBP/USD traded little changed, as investors took a breather after a sharp rise in the pair on Friday, which was prompted by Bloomberg’s reports that U.K. Prime Minister Theresa May is ready to ditch one of her key Brexit demands in order to resolve the vexed issue of the Irish border and clear the path to a deal. With an empty economic calendar in the UK ahead, the main catalysts for the pair today will be the dynamics of the U.S. currency and the general market sentiment toward risky assets, as well as the Brexit-related news. Resistance level - $1.3257 (high of October 12). Support level - $1.2921 (low of October 4).
The currency pair AUD/USD dropped sharply at the beginning of the session, but then regained all losses, helped by rising commodity prices and improved risk appetite. Market participants also digested news from China, Australia’s main trading partner, which revealed authorities plan to cut personal income taxes to support an economy showing strains from the trade war with the U.S. According to the draft plan of the Ministry of Finance and the State Administration of Taxation, the taxpayers who have expenditures related to such items as children's education, adult education, treatment of serious diseases, livelihood of seniors, housing loan interest and apartment rents will enjoy additional deductions to their taxable incomes next year. The size of the announced tax cuts turned out to be greater than expected, having a positive effect on market sentiment. 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, as the demand for a "safe" yen reduced. The pair’s performance was also influenced by the Japanese data on all industry activity index. The Ministry of Economy, Trade and Industry reported the all industry activity index climbed 0.5 percent m-o-m in August, following a 0.2 percent m-o-m drop in July. Economists had forecast a gain of 0.4 percent m-o-m. In addition, investors are gradually preparing for the release of Japan’s inflation data (due on Thursday at 23:30 GMT). It is expected that Tokyo consumer price index (CPI) rose by 1.3 percent y-o-y in October following a similar advance in September. Resistance level - Y113.37 (high of October 9). Support level - Y111.62 (low of October 15).
U.S. stock indexes closed mixed on Friday, upbeat earnings were offset by ongoing concerns about rising interest rates and trade tensions denting economic growth. Focus also was on the U.S. data on existing home sales for September. The National Association of Realtors (NAR) announced the U.S. existing home sales fell 3.4 percent from August to a seasonally adjusted rate of 5.15 million in September from a revised 5.33 million in August (originally 5.34 million). Economists had forecast home resales increasing to a 5.30 million-unit pace last month.
Asian stock indexes closed mostly higher on Monday. China’s equities outperformed, helped by reports the Chinese government plans to cut personal income taxes to support the economy. Japan’s stocks rose moderately, as the yen weakened against the U.S. dollar, supporting the Japanese export-oriented companies.
European stock indexes are expected to trade mixed in the morning trading session.
Yields of US 10-year notes hold at 3.20% (+2 basis points)
Yields of German 10-year bonds hold at 0.46% (0 basis points)
Yields of UK 10-year gilts hold at 1.44% (0 basis points)
Light Sweet Crude Oil (WTI) futures traded higher. Crude oil for delivery in December settled at $69.64 (+0.52%). The crude oil prices rose moderately amid concerns that crude supply from the Middle East could be disrupted by looming U.S. sanctions on Iran and escalating tensions with Saudi Arabia over the disappearance of Saudi journalist Jamal Khashoggi. Investors also continued to digest the latest data from Baker Hughes, which revealed the number of active U.S. rigs drilling for oil jumped by four to 873 during the week ended October 19. In the prior week, the oil-rig count climbed by eight. Meanwhile, the total active U.S. rig count, which includes oil and natural-gas rigs, also increased by four to 1,067, as the gas rig count rose by one to 194 last week, and the miscellaneous rig count decreased by one to 0. The U.S. rig count is up 154 rigs from this time last year when it stood at 913.
Gold traded at $1,226.80 (+0.04%). Gold prices were little changed, on the back of the U.S. dollar’s stabilization and the lack of new catalysts.
IV. The most important scheduled events (time GMT 0)
Bundesbank Monthly Report
Chicago Federal National Activity Index
RBA Assist Gov Debelle Speaks
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