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While sentiment was subdued in the US as losses accelerated towards the end of the session, it seems investors aren’t completely convinced there was enough ‘bad news’ to warrant the sharp sell-off. The losses were mainly blamed on airline stock weaknesses after an Ebola scare and a drop in Brent Crude prices hurt energy plays.
However, with US earnings set to come in thick and fast and no real conviction to buy the dips in equities, there was just nothing to support the price action – resulting in the breach key technical levels and the 200-day moving average. Additionally, Columbus Day in the US kept volume relatively low and exaggerated the downward move.
It certainly feels like make-or-break week for the US, with around 53 S&P 500 firms reporting Q3 earnings this week, starting today. JP Morgan, Johnson & Johnson, Wells Fargo and Citigroup report before market, while Intel reports after.
This will help give a better indication of growth from an earnings perspective and will set up expectations for the rest of the earnings season. Given the momentum we’ve been seeing in US economic data, there is a good chance earnings will get off to a strong start. It’ll be all about whether earnings can match momentum from the economic data and how confident companies are with forecasts.
Japan recovers from lows
The Nikkei has lagged the region today but is significantly off its lows, helped by a USD/JPYrecovery. There is growing talk around global growth concerns reducing the Fed’s desire to start tightening around the middle of next year. While growth has certainly been an issue of late, I feel this is exaggerated and investors will just have to continue monitoring data to get an accurate indication of when we should expect rates lift-off.
USD/JPY finally managed to find some support after having traded through ¥110.00 on 1 October and dipped below ¥107.00 yesterday. Interestingly, USD/JPY bottomed at the 61.8% retracement of the August-to-October rally, which comes in at ¥106.80. This has sparked a bit of a recovery in Asia and the pair is trading back above the ¥107.00 level. Japan’s Nikkei has been supported by this move and has nearly halved its earlier losses.