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The S&P 500 was down 0.5% at one stage, but came back to settle around the flat line, with the telcos and industrials showing movement at a sectorial level. The energy space has closed unchanged, which is fairly positive given oil has been sold into $50 on comments from Rosneft (Russia’s biggest energy producer) that they have the capabilities to lift production.
US earnings are trickling in thick and fast, with Microsoft reporting numbers as I type and on first blush the market seems to like the Q1 (adjusted) earnings per share (EPS) of 76c (consensus was 68c), with revenue also above forecasts at $22.3 billion. Shares are up 4.6% in post-market trade.
20% of the S&P 500 have now reported and thus far the numbers are certainly helping support the market. A lazy 81% have beaten the street’s consensus estimates on EPS, by an average of 6.5%, and an impressive 63% on sales. Aggregate growth is 4.2% stronger than the previous corresponding period. Look for numbers in upcoming trade from McDonald’s and GE.
European equities have seen better upside after European Central Bank (ECB) Governor Mario Draghi said very little. This made traders feel that the central bank will not ease back on its asset purchases anytime soon and talk that the inflation outlook is predicated on its current accommodative stance. The reaction was best seen in the fixed income and FX markets, with the German ten-year bund threatening to go negative again (-3bp on the session), while EUR/USD, after initially rallying 80 pips or so, turned around and is now testing the UK referendum (24 June) low of $1.0911. The focus is now firmly on the 8 December ECB meeting for guidance around the future of its asset purchase program, and I would personally expect the ECB to announce an extension of its €80 billion a month QE program by six month. It actually promises to be a volatile period given the December Federal Open Market Committee (FOMC) meeting takes place four business days later.
The move lower in EUR/USD has lifted the USD index (DXY) to the highest levels since March and DXY looks quite constructive for further gains, which should concern those long emerging market assets. There haven’t been too many specific drivers for the USD overnight, although expectations of a December hike have pushed up a touch to 67%. Next week’s US Q3 GDP could be a big catalyst for traders, with expectations of a rebound in Q2 (+1.4%) to 2.5%. The economists’ range is set from +3.1% to +1.3%.
The big mover on the session has been the AUD and clearly my bias yesterday to ‘modestly positive’ was ill timed and the fairly terrible September employment report has seen a wave of capital leaving AUD and repositioning back into USD. AUD/USD is looking to close the session 1.3% lower and after trading above Wednesday’s high, it is set for a firm close below the Wednesday low. This is commonly referred to in price action analysis as a bearish key day reversal. We now need a lower low in price today and the probability would suggest lower levels in the near-term for AUD/USD.
Putting my fundamental hat on, where price goes will be determined by the outcome of Wednesday’s Aussie Q3 CPI and we will need to see a core inflation (trimmed mean) print of +0.2% (quarter-on-quarter) or lower to get the market excited about a lower cash rate. The consensus is currently calling for 0.4%, which shouldn’t trouble the RBA’s current inflation estimates. The swaps market currently places an 18% chance of a cut in the November meeting.
Turning to the Asian market open and we see the ASX 200 opening largely unchanged with SPI futures down a whopping 3 points. BHP’s ADR (American Depositary Receipt) indicates an open around 18c lower, in line with lower oil prices, while spot iron ore has put on 0.8% at $58.85. CBA’s ADR is up around 10c. Given moves in energy we may see some selling in the space, although the S&P 500 energy sector is largely unchanged. Santos releases sales and production data today.
A close above 5434 is needed for a weekly gain, a probability that our volatility desk see as a 65% chance.