I. Market focus
At the beginning of Thursday’s session, the focus of market participants was on the fall of the major U.S. stock indexes, which posted losses of 3 to 4 percent. The indices were weighed down by a continuing increase in the U.S. Treasury yields, as well as concerns about the negative impact of the U.S.-China trade war on corporate earnings. On Wednesday, the 10-year Treasury note yield rose to 3.258 percent, hitting its highest level since 2011. In the morning, negative sentiment continued to predominate in the stock markets: China’s major stock market gauge, the Shanghai Composite index, and Japan’s Nikkei tumbled more than 4 percent each, while the losses in the U.S. stock index futures in the morning were approaching 1 percent. Most likely, the outflow of capital from the stock market will continue today, and we will see a further decline in stock indices.
Against this backdrop, relatively safe assets, such as the yen and gold, will be in high demand. Yesterday, their values rose, and this trend is likely to continue today.
The U.S. President Donald Trump expressed his opinion on Wednesday’s stock market sell-off. According to Trump, the Fed is to blame for the plunge in stock markets, which is raising rates, but not his trade war with China. “I think the Fed is making a mistake. It’s so tight. I think the Fed has gone crazy,” Trump said. The comments of the U.S. president did not influence the market dynamics.
Today’s session will be busy with important macroeconomic reports and events, but they may have a little influence on the markets amid continuing flight from risk. The main macroeconomic data on Thursday will be the U.S. statistics on the consumer price index (12:30 GMT). Data on crude oil inventories in the U.S. (15:00 GMT) and business sentiment in New Zealand (21:30 GMT) will also be of some interest. In addition, the attention should be paid to the publication of the minutes of the last meeting of the ECB (11:30 GMT), as well as the comments of the Bank of England (BoE) governor Mark Carney (09:00 GMT).
II. The market highlights are:
The Labor Department reported on Wednesday the U.S. producer-price index (PPI) rose 0.2 percent m-o-m in September after a 0.1 m-o-m drop in August. For the 12 months through September, the PPI surged 2.6 percent compared to a 2.8 percent increase recorded in the prior month. Economists had forecast the headline PPI would rise 0.2 m-o-m last month and 2.8 percent over the past 12 months. According to the report, the September advance in the final demand index can be traced to a 0.3-percent m-o-m increase in prices for final demand services. Meanwhile, the index for final demand goods edged down 0.1 percent m-o-m. Excluding volatile prices for food and energy, the PPI rose 0.2 percent m-o-m and 2.5 percent over 12 months, matching economists forecasts.
The Melbourne Institute’s survey on Australia’s consumer inflation expectation revealed on Thursday the expected inflation rate remained unchanged in October at 4 percent. According to the report, the weighted proportion of respondents (excluding the ‘don’t know’ category) expecting the inflation rate to fall within the 0-5 percent range increased by 2.8 percentage points to 66.5 percent. Meanwhile, the weighted mean of responses within this range rose by 0.1 percentage points to 2.5 percent.
III. Market Situation
The currency pair EUR/USD rose moderately, continuing the previous day’s dynamics and approaching one-week high, as the U.S. dollar demonstrated the broad weakness and the investors adjusted their positions ahead of the release of the U.S. inflation data for September. In August, consumer prices rose by 0.2 percent m-o-m, which was slightly below the market expectations. For the 12 months through August, the consumer price index (CPI) rose 2.7 percent y-o-y, the same pace as in the 12 months through July. The core CPI excluding volatile food and fuel costs edged up 0.1 percent m-o-m in August, following a 0.2 percent m-o-m gain in the previous month. In the 12 months through August, the core CPI rose 2.2 percent, decelerating from a 2.4 percent advance in the year through July. Economists expect the U.S. consumer prices probably remained elevated in September and rose 0.2 percent m-o-m and 2.4 percent y-o-y. The higher-than-expected U.S. CPI data will bolster the fears that the Federal Reserve may raise interest rates more quickly than planned. Resistance level - $1.1651 (high of September 28). Support level - $1.1432 (low of October 9).
The currency pair GBP/USD traded higher, nearing its three-week peak. The pair was supported by the weakening of the U.S. currency and the statements of the EU's chief Brexit negotiator Michel Barnier. Barnier said on Wednesday that 80-85 percent of the withdrawal treaty with Britain had been agreed, adding that the deal was "within reach by Wednesday 17 October". He noted: “We are doing our best to reach a deal... a lot of the withdrawal agreement has been agreed. 80 to 85 percent for the moment, however difficult issues left until the end... governance, geographical indicators and Ireland.” Today, market participants will continue to monitor the dynamics of the U.S. dollar, as well as pay attention to the publication of the Bank of England’s (BoE) credit conditions survey and statements by the BoE’s governor Mark Carney. Resistance level - $1.3297 (high of September 20). Support level - $1.3137 (low of October 10).
The currency pair AUD/USD rose moderately, recovering about half of the ground lost the day before. The pair’s recovery was due to partial profit-taking and a broad weakening of the U.S. dollar. The latest survey from the Melbourne Institute also had a certain influence on the pair’s performance. It revealed the expected inflation rate remained unchanged in October at 4 percent. Investors' attention is gradually shifting to the Australian data on home loans for August and the RBA Financial Stability Review, which will be released tomorrow at 00:30 GMT. Resistance level - AUD0.7129 (high of October 10). Support level - AUD0.7000 (psychological level).
The currency pair USD/JPY traded moderately lower, due to the increased demand for safe-haven assets amid the global stock market plunge. Investors also digested the statements of Bank of Japan (BoJ) board member Makoto Sakurai, who warned that the protectionist trade moves were causing uncertainty in the global economy and could cause Japan's economy to fall short of the BoJ’s growth projections. The Japanese central bank will hold its next monetary policy review on October 30-31, when it will also update its quarterly economic and price forecasts. Resistance level - Y113.37 (high of October 9). Support level - Y111.62 (low of September 18).
U.S. stock indexes closed drastically lower on Wednesday, weighed down by concerns about economic and earnings growth prospects. The tech shares were hit particularly hard. Focus also was on the U.S. producer price index (PPI). The Labor Department reported the U.S. PPI rose 0.2 percent m-o-m in September after a 0.1 m-o-m drop in August. For the 12 months through September, the PPI surged 2.6 percent compared to a 2.8 percent increase recorded in the prior month. Economists had forecast the headline PPI would rise 0.2 m-o-m last month and 2.8 percent over the past 12 months. Excluding volatile prices for food and energy, the PPI rose 0.2 percent m-o-m and 2.5 percent over 12 months, matching economists forecasts.
Asian stock indexes closed sharply lower on Thursday, following Wall Street’s tumble overnight.
European stock indexes are expected to trade lower in the morning trading session.
Yields of US 10-year notes hold at 3.15% (-7 basis points)
Yields of German 10-year bonds hold at 0.56% (0 basis points)
Yields of UK 10-year gilts hold at 1.59% (0 basis points)
Light Sweet Crude Oil (WTI) futures traded lower. Crude oil for delivery in November settled at $72.17 (-1.37%). The crude oil prices fell steeply, responding to the latest data from the American Petroleum Institute (API). The API reported that U.S. crude supplies rose by 9.7 million barrels for the week ended October 5. Meanwhile, supplies of gasoline rose by 3.4 million barrels, while distillates dropped by 3.5 million barrels. Market participants are now awaiting weekly data on U.S. crude inventories from the U.S. Energy Information Administration (EIA). Economists forecast the U.S. oil inventories rose by 2.647 million barrels last week, following a build of 7.975 million barrels in the previous week.
Gold traded at $1,192.50 (-0.20%). Gold prices fell slightly on the back of a partial profit-taking after the previous day’s rally. However, a further fall in the gold prices was limited by the negative dynamics of the U.S. currency. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, fell by 0.21% to 95.30. Since gold prices are tied to the dollar, a weaker dollar makes the precious metal cheaper for holders of foreign currencies.
IV. The most important scheduled events (time GMT 0)
BOE Credit Conditions Survey
BOE Gov Mark Carney Speaks
MPC Member Vlieghe Speaks
ECB Monetary Policy Meeting Accounts
New Housing Price Index
Continuing Jobless Claims
Initial Jobless Claims
CPI excluding food and energy
Crude Oil Inventories
Business NZ PMI
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