Weak sentiment driving markets

Weak leads are at their weakest in the week thus far with losses spread through US and European equity markets while oil prices extended lower. 

Source: Bloomberg

Meanwhile the dollar index saw sideway movements on Thursday and was last seen holding above the 97.000 figure.

The bemoaned eight consecutive sessions of decline on the S&P 500 has taken place with the latest close of -0.44% on Thursday. Nevertheless as we have highlighted, none of these eight sessions thus far has clocked more than 1.0% losses and could really be attributed to risk aversion ahead of the US elections instead of a more worrying case of panic from a crisis. From a market point of view, both candidates could represent uncertainty ahead in terms of policies. However, even more importantly, it is their influence over the interest rate path for the US economy that will have a more direct near-term impact on the markets.  

Overnight we have also seen the slide in the USD index stall ahead of the 97.000 figure. Mixed data arrived from the US with better than expected September factory orders at 0.3% MoM while durable goods orders missed at -0.3% MoM. Notably, third quarter US non-farm productivity (prelim.) has risen to 3.1% QoQ, the highest in two years. Consolidation can be seen ahead of the non-farm payrolls data due today. However, the impact could be limited, as we have temporarily departed from the influence of economic indicators and we are currently stuck in a sentiment-driven climate.

The main action overnight came from the UK where the high court ruled that the government does not have the authority to trigger Article 50 of the Lisbon Treaty for UK to commence the departure from EU. Furthermore, the Bank of England left key interest rates unchanged and raised the growth projection to 2.2% for 2016 and 1.4% for 2017. The cumulative effect brought GBP/USD up more than 100 pips to the highest levels seen since the flash crash in early October. 

Meanwhile for oil prices, Oil - US Crude clocked another decline, trading on either side of $45.00/bbl into the end of the week. Prices have sunk to the lowest level since late September when the OPEC plan to limit output first surfaced in their meeting at the Algiers. The retracement of the gains thus far is a clear reflection of doubts the market is holding with respect to the deal. 

Asian markets are likely to remain stuck in the current downtrend into the last day of the week. The only exceptions in the day before had been the Chinese markets with an improvement seen in the Caixin PMI services yesterday.

Onshore markets in Japan return today from the Culture Day holiday to see the Nikkei gap lower by more than 100 pips at the open. Weak sentiment is expected to continue guiding markets. The last weekend had also shown us what a weekend could do for the US elections and with one final weekend to go before the polls close, next week’s open could be anybody’s guess.  

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