It was a case of picking a narrative to suit your bearish view overnight – Stock Market Analysis Today: Equities set for a bit of a soggy open.
The sell-off could more about de-grossing into an expected US election hiatus as hopes for a pre-election US stimulus talks stall. I suspect investors are giving up on any hope that they will see new highs ahead of election day on November 3.
And the US dollar is rangebound on a broad-based trade-weighted basis as traders start to roll out their post-election playbooks.
Markets sank into the red as stimulus hopes that lifted stocks early doors quickly soured. Talks on fiscal aid continued, but the two sides remain reluctant to compromise, with House Speaker Nancy Pelosi saying that significant disagreements remain.
In contrast, Republicans in the Senate continue to push a smaller aid package. Asian markets also slipped on the stimulus stalemate.
Meanwhile, global coronavirus cases exceeded 40 million, with the pandemic showing no signs of slowing. Broader macro risk indicators are mixed overnight with safe-haven assets generally for sale, although conversely, growth proxies such as oil are again weaker.
European equities are set to trade a bit soggy, with cyclicals expected to struggle early. One should expect trading to be choppy to start the day, given yesterday’s Euronext close.
Price action will be gripping in the context of how much is already priced in, with beats this quarter getting sold in the US in particular.
Brexit remains a near-term risk for European markets – Stock Market Analysis Today
Brexit remains the critical near-term risk in Europe, although the market seems to believe that a compromise will be reached, with sterling relatively well bid in the past week or so.
As expected, the People’s Bank of China’s (PBoC) 1y (3.85%) and 5y (4.65%) Loan Prime Rates were left unchanged. With the September data indicating a reliable economic recovery.
One sure thing is that President Xi and PBoC will not let the market snatch defeat from the jaws of victory, and if needed, can still slice off an RRR or MLF cut into the year-end as the central bank has ample policy wiggle room.
Still in the lead up the Party Plenary, China-sensitive assets could yet defy broader rangebound markets, especially with China’s recovery in private consumption gathering momentum.
Currency Markets – Stock Market Analysis Today
Choppy price action for GBP
Choppy headline-driven price action in GBPUSD should persist. But the pound’s resilience to negative news flows speaks volumes about the positioning optimism that a deal will go through. Let’s hope constructive progress endures. It feels like we are playing a pinball machine, getting bounced around but not going anywhere these days.
The Australian Dollar
The Aussie came under fire following dovish comments from Reserve Bank of Australia (RBA) Assistant Governor Kent. The RBA minutes shortly afterwards did little to change this dynamic.
While it feels a bit like we are tethered to the end of the risk yo-yo string, G-10 FX traders know not to push back hard against a central bank dovish pivot, so I expect AUDUSD rallies to be sold over the short term.
The Swiss Franc
It was a soft start to the week for USDCHF. The test lower was driven by the rally in EURUSD on what seemed like large buying order going through the market yesterday in London. But looking at USD sentiment across the G10, I doubt that this move extends from here. It’s more likely that USDCHF will remain rangebound.
EURCHF price action remains poor. The cross even failed to rally yesterday when EURUSD ground up 80 pips. This is consistent with our view that it is best to trade the EU’s negative Covid-19 currency expression via short EURCHF.
The Chinese Yuan
In the wake of the GDP miss, the USDCNH max downtrend has given way to caution as the market frets about a slowdown in China’s recovery. But by no means will the market turn bearish on the RMB, though traders might pause for a cause ahead of the plenary.
The Chinese Communist Party’s fifth plenum meeting (Oct. 26-29) is the next key policy event that will outline China’s primary strategic medium-term economic priorities, which will likely include greater technological independence and steps to encourage private consumption.
Oil falls on prospect of more lockdowns – Stock Market Analysis Today
The prospect of further lockdown measures weighed on the oil markets, with OPEC+ warning of a “precarious” outlook for crude demand and hinting at a potential change in policy next month.
But oil is finding a bid on dips to the $40/barrel level (WTI) as few think OPEC will bring more barrels to market in January.
The demand outlook remains the great unknown, with increasing social mobility restrictions in Europe. But an OPEC agreement to extend current quotas could protect the downside for oil.
Stock Market Analysis Today: Equities set for a bit of a soggy open