A weekend of footy finals awaits

The headlines are filled with a loss of confidence in Deutsche from a number of hedge funds who use them as their primary broker.

  • Some pick up in implied market volatility with traders happy to pay up for portfolio protection. The US volatility (VIX) increased 14%, although at 14, the VIX is hardly indicative of a huge move in either direction.
  • The S&P 500 fell 0.9%, with banks and health care at the heart of the selling. The moves lower were broad based, with 88% of stocks lower on the day and volume (through the market) 13% above the 30-day average.
  • Some focus on reports on a number of hedge funds, who used Deutsche Bank as their prime broker, were pulling business. Deutsche closed up 1% in Frankfurt, but has dropped 6.7% on its US listing. Our call for the DAX (if it were to open now) is 1% lower on the open and eyeing a test of the 16 September low of 10245. The German index has effectively moved sideways since mid-August and one questions if it is ready to trend lower.
  • US Q2 GDP was revised up to 1.4%, although personal consumption was revised ten basis points slower to 4.3%. Keep a focus on core PCE (personal consumption expenditure) and personal spending at 10.30pm (AEST). Core PCE is the US Federal Reserve’s (Fed) favourite inflation read, so a number higher than 1.8% (consensus is for a slight tick up to 1.7%) would push up longer maturity bonds and get the USD bulls excited.
  • By way of a guide, US Q3 GDP (released on 28 October) is tracking at 2.8% if we go off the Atlanta Fed’s GDP model. We would expect Q4 to pull back closer to 1.5%.
  • All eyes on oil yesterday, but more sanguine trade has been seen today. US crude hit a high of $48.43, but settled lower. Watch how price behaves into $49.00 (and the 19 August high), a break here takes us to $50, but given the question marks around the execution of OPEC’s production cuts, one suspects the bears will be happy to accumulate short positions into the figure.
  • AUD/USD traded in a range of $0.7710 to $0.7623 and currently resides at the lower end of that range. Traders will be eyeing US inflation tonight, but technically we have seen a bearish key day reversal (ie. price trading above Wednesday's high and set to close below the low). We should watch for a lower low, which would suggest the trend higher that started on 13 September could be over.
  • The bigger moves in the AUD were seen against the CHF and EUR. EUR/AUD could rally from here into the A$1.4800 level and I would be trailing stops higher on a break of this level. Traders are still focused on USD/JPY, with good selling coming into the pair into the 20-day average at ¥101.58. It seems unlikely we will see a break of ¥100.00 today, but this is the level all FX traders are watching.
  • The ASX 200 looks set to open at 5442 (-0.5%). BHP and RIO had huge sessions in London (BHP rallied 6.5%), but if we use its American Depository Receipt (ADR), we should see a fairly flat open. SPI futures closed at 5429 (-34 points or -0.6%).
  • Clearly volumes will be an issue today with the Grand Final holiday in Victoria, so expect struggle for direction after the unwinding of the auction. We need a close today above 5431 to print back-to-back gains for the Aussie index, so that's the target for today. Lots of talk of grand final on desks today. I am calling Doggies by 15.

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