USA equities fell back on Monday due to a variety of reasons, most notably the vague threat of impeachment versus USA president Trump, if fresh accusations to Russia interfering in the USA general election, are proven to have direct links back to Trump’s election campaign team. Naturally, any threat to Trump’s commitment to lower corporate tax rates to circa 20%, from their current approx. 35% rate, raises investor concerns.
As a consequence several key indices fell on Monday, in particular the small cap Russell index fell sharply, as quoted firms in this index arguably have the most to gain from any tax cuts. However, the overall moderate fall in indices must be viewed in context; markets have reached consistent record highs over recent weeks and months, therefore any moderate pullback could be considered technical, as opposed to fundamental.
The DJIA fell by 0.36% whilst the Russell index fell by as much as 1.3% in the New York session. With the FOMC due to announce an interest rate decision on Wednesday, improved personal consumption and spending figures came as a timely suggestion that the Fed chairs can afford to vote for a rise of 0.25% on Wednesday. The U.S. dollar fell versus its three main peers; yen, euro and sterling, falling the most versus the U.K. pound, down approx. 0.7% on the day, which gained not only due to dollar weakness across the board, but also as a consequence of sterling strength, based on bets increasing that the U.K. BoE’s monetary policy committee will announce a base rate rise to 0.5%, at the culmination of its meeting on Thursday.
Investors noted the latest consumer lending figures in the U.K., which beat the forecasts for both unsecured debt (rising by 9.9% YoY) and mortgages granted in September, immediately investors translated the news as the BoE having another reason to raise the base rate. Not only does the BoE need to arrest inflation, a stronger pound should accomplish that objective, the central bank has also voiced concerns that U.K. unsecured borrowing is getting out of control, again. Therefore increasing the rate, rather than applying limits on banks, appears to be the most effective remedy.
European news mainly concerned the various Eurozone confidence readings for: services, consumer, industry and business climate, all beat, or matched the forecasts. Germany’s CPI figure was also published; coming in below the 1.6% forecast, at 1.7%, whilst German retail sales beat forecast, by rising 4.1% YoY. With these positive economic calendar releases and a sense of calm and potential negotiation looking likely with regards to Catalonia, the euro rose by circa 0.4% versus the U.S. dollar, whilst the key Eurozone equities mostly rose, with Spain’s IBEX rising by 2.44% on the day.
EURO
EUR/USD crashed through the 100 DMA on Friday, currently located at 1.1683. The currency pair regained lost ground during Monday’s trading sessions, closing up by circa 0.4%, having risen through R1, to end the day at approx. 1.1644. Versus AUD, NZD and CHF the euro was effectively flat on the day, resting close to the daily pivot point. EUR/GBP ended the day down circa 0.3% at 0.8817, breaching S1. EUR/JPY fell by circa 0.2%, whilst EUR/CAD rose by by a similar amount.
STERLING
GBP/USD has rejected the 100 DMA to the downside on two separate occasions over recent weeks, on October 9th and 29th. The major currency pair rose by circa 0.7% during Monday’s trading sessions, breaching R2 ending the day at circa 1.3204. Versus CHF, AUD and NZD sterling made gains of circa 0.3% on the day, resting close to R1. GBP/CAD ended the day up 0.5% at 1.6943, resting on R2. The Canadian dollar fell versus the majority of its peers, with the exception of USD. As a commodity currency, the rise in the value of WTI can often correlate with the value of CAD.
U.S.DOLLAR
USD/JPY has experienced significant gains, since printing a multi month low of circa 107.6 on September 9th. Having printed a recent four month high and breaching the critical psyche handle of 114 on October 29th, the currency pair has retreated and given up some gains. On Monday USD/JPY fell through S2, down circa 0.6%, to end the day at circa 113.10. After finally breaching up through the 200 DMA on October 21st, previously rejecting the key level on the 8th and 18th, USD/CHF has experienced considerable gains. On Monday USD/CHF fell by circa 0.3% to 0.9955, breaching S1. USD/CAD breached the 100 DMA to the upside on October 22nd, having made significant gains since breaching the DMA, the pair ended flat on the day at circa 1.2828.
EQUITIES AND COMMODITIES SNAPSHOT FOR OCTOBER 30th.
• DJIA closed down 0.36%.
• SPX closed down 0.32%.
• FTSE 100 closed down 0.23%.
• DAX closed up 0.09%.
• CAC closed down 0.01%.
• WTI oil ended the day up circa 0.5% at $54.16 per barrel.
• Gold closed up approx. 0.3% at $1276 per ounce.
KEY ECONOMIC CALENDAR EVENTS FOR OCTOBER 31st
• EUR French Gross Domestic Product (YoY) (3Q A).
• EUR Euro-Zone Gross Domestic Product s.a. (YoY) (3Q A).
• CAD Gross Domestic Product (YoY) (AUG).
• USD S&P/CS Composite-20 (YoY) (AUG).
• USD Consumer Confidence Index (OCT).
• NZD Unemployment Rate (3Q).
