S&P 500 Price Forecast – Stock Markets Quiet on Tuesday

The S&P 500 has gapped higher to kick off the trading session on Tuesday, reaching towards the 3450 level as the markets are waiting to find out whether or not the United States will do more Covid relief stimulus. Ultimately, this is a market that should continue to see buyers given enough time, especially if we get more of that cheap money. That being said, the 3400 level underneath should be massive support, so if we were to break down below there then the next buying area could be the 50 day EMA, followed by the uptrend line that I have marked on the chart.

S&P 500 Video 21.10.20

On the other hand, we could just go straight up in the air, but I think the 3500 level will be massive resistance. If we were to break above there, then it gives the market a good opportunity to go looking towards the highs again. That being said, I think we have a lot of volatility between now and the election, and of course the stimulus questions will cause issues. Because of this, I am cautious about putting too much money into the market, due to the fact that the headline risk is so great.

That being said, the market has recently made what could be thought of as forming a “double top”, but I think it is a bit of a stretch at this point. That being said, the market continues to be very noisy and therefore I think you need to be cautious about position size more than anything else.

For a look at all of today’s economic events, check out our economic calendar.

Dollar Under Pressure but EUR/AUD Stands Out

Indices and American Dollar collapsed yesterday. Tuesday brings us a reversal attempt on stocks but Dollar remains ultra-bearish. We are not surprised with that as we were highlighting this possibility in our video from yesterday. As always, welcome to Trading Sniper, where we have three best trading setups on the market.

First one is the Dollar Index, which is in a downfall after creating the flag and the head and shoulders pattern. Both formations ended with broken supports, which in both cases activates a legitimate sell signal. We do not see much of a hope for buyers but comeback above the neckline could be good for a start. As long as we stay below, the sentiment is negative.

Slide on Dollar Index, usually means rise on EURUSD. It is not different this time. The price came back above two major horizontal resistances and then managed to break the long-term down trendline. That breakout gives us a buy signal and a lot of optimism.

EURUSD may look nice but crème de la crème of today’s video is EURAUD. A long time ago, I spotted a nice sideways trend and was waiting for a breakout ever since, to the upside to be accurate. The breakout happened yesterday and ended 4 months of a boring sideways trend. According to Price Action, that is a strong, long-term buy signal, the one that should come as a reward for patient traders. Lets see how this one will work out.

For a look at all of today’s economic events, check out our economic calendar.

IMF Expects Precious Metals Index to Rise

IMF’s economic outlook for 2020 is less grim, but the more distant future is more worrisome. Therefore, the precious metals index is expected to rise.

October’s edition of the IMF’s World Economic Outlook Report is out! The main message that the report conveys is that the IMF now predicts a less severe global contraction than in 2020 but a slower recovery in 2021 . The global economy is projected to plunge 4.4 percent this year and rise 5.2 percent in the subsequent year, contrary to the -5.2 and 5.4 percent changes forecasted in June.

Unfortunately, the prospects for emerging countries, excluding China, have worsened, and the economic decline for 2020 is projected to be greater than previously estimated. As a result, the pandemic will reverse the progress made since the 1990s in reducing global poverty.

When it comes to the US economy, it is forecasted to contract by 4.3 percent this year before growing at 3.1 percent in 2021, compared to -8 percent and 4.5 percent seen a few months ago. However, the reasons for the celebration are limited, as these projections could be revised down soon.

You see, the problem is that the second wave of the coronavirus cases (see the chart below) is hurting the employment rate again.

As the chart below points out, the number of Americans who applied for unemployment benefits has recently risen to the highest level over the last few weeks.

Even though the IMF’s near-term projection improved, another issue is that the baseline forecast envisages growth to slow down into the medium term , as the deep downturn this year will harm the supply potential. It means that the US will only modestly progress toward the 2020–25 path of economic activity projected before the epidemic .

Most importantly, the subdued outlook for medium-term growth comes with a significant projected increase in public debt stock. What is worrying is that the reduced potential output also implies a smaller mid-term tax base than previously anticipated, making repaying debts even more difficult.

Indeed, debt is an increasingly pressing problem all over the world , including the US. As a matter of fact, according to the IMF’s Fiscal Monitor , the debt-to-GDP ratio will stabilize next year everywhere but China and the US:

In 2020, government deficits are set to surge by an average of 9 percent of GDP, and global public debt is projected to approach 100 percent of GDP, a record high. Under the baseline assumptions of a healthy rebound in economic activity and low, stable interest rates, the global public debt ratio is expected to stabilize in 2021, on average, except in China and the United States.

However, public debt is not the only big problem in the US. Corporate indebtedness is also a worrying issue . In response to the coronavirus crisis, firms have also taken on more debt to cope with the reduced income and cash shortages, adding to the already high debt levels. Therefore, if the recovery is delayed, “liquidity pressures may morph into insolvencies,” according to the IMF’s Global Financial Stability Report . So far, the policy support limited the scale of bankruptcies. Still, the economists from the Bank of International Settlements predict that bankruptcies in advanced economies could rise from the baseline in 2019 by around 20 percent in 2021.

Implications for Gold

What does all the above mean for the gold market? Well, the improved near-term outlook for the US economy is not good news for the yellow metal. However, the slower expected growth in 2021 and beyond is becoming more positive. Notably, “the global economy’s long ascent back to pre-pandemic levels of activity remains prone to setbacks”. In other words, the uncertainties persist, which should support the safe-haven demand for gold as a result .

It is perhaps why the IMF expects that the precious metals index will increase by 28.4 percent in 2020 and by an additional 10.4 percent in 2021 amid the elevated risks and dovish monetary policy .

The growing coronavirus cases, subsequent worries about the already fragile recovery, US presidential election uncertainty have recently pushed gold prices above $1,900, as one can see in the chart below.

What is most important here is that the price of gold managed to rise above $1,900 again, despite the declining odds of a new fiscal stimulus before the elections and the resulting S&P 500 Index decrease. Gold’s decoupling from the stock market would increase its role as a safe-haven asset.

However, it might be the case that gold is just hovering around $1,900 right now, and it needs a fresh catalyst to continue its rally . Who knows, maybe the US presidential elections, which are likely to be contested, will provide such a trigger? We will elaborate on this later – stay tuned!

In order to enjoy our gold analyses we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

For a look at all of today’s economic events, check out our economic calendar.

 

Arkadiusz Sieron, PhD
Sunshine Profits: Analysis. Care. Profits.

 

U.S. Stocks Set To Open Higher As Traders Still Hope For A Stimulus Deal

Coronavirus Aid Talks Continue

Yesterday, S&P 500 lost more than 1.5% on signs that U.S. Republicans and Democrats will not be able to reach consensus on the new coronavirus aid package deal before the November election.

Today, S&P 500 futures are gaining ground in premarket trading amid renewed hopes for a stimulus deal. On Monday, House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin talked for about an hour and managed to narrow the gap between the positions of Republicans and Democrats.

Their talks will continue today, and traders hope that they will ultimately manage to agree to a new stimulus package. Failure to reach consensus on the new aid deal could lead to another sell-off.

Brexit Talks Have Stalled

EU and Britain continued to blame each other after they failed to reach consensus on the Brexit deal. However, it looks like both sides are not ready to walk away from the deal, and both EU and UK signaled that they were prepared to continue negotiations.

Despite the absence of any material progress, the market believes that the deal is imminent. EUR/USD and GBP/USD have gained ground in October as currency traders have mostly ignored Brexit risks. Meanwhile, stock traders are more focused on the U.S. stimulus deal and the second wave of coronavirus in Europe.

In this situation, a potential Brexit without a deal could turn into a real black swan event for markets as it looks like nobody is prepared for such a scenario.

U.S. Building Permits Increased By 5.2% In September

The U.S. has just provided Building Permits and Housing Starts reports for September. Housing Starts increased by 1.9% after declining by 6.7% in August (revised from -5.1%). Analysts expected that Housing Starts would grow by 2.8%.

Meanwhile, Building Permits grew by 5.2% compared to analyst consensus which called for growth of 1.8%. Back in August, Building Permits decreased by 0.5% (revised from-0.9%).

The housing sector remains a bright spot in the U.S. economy, and the new reports are bullish for stocks.

For a look at all of today’s economic events, check out our economic calendar.

ConocoPhillips Agrees to Acquire Concho Resources for $9.7 Billion

ConocoPhillips, an independent oil and gas exploration company, said it will acquire the U.S. shale oil producer Concho Resources in an all-stock transaction valued at $9.7 billion.

Under the terms of the deal, each share of Concho Resources common stock will be exchanged for a fixed ratio of 1.46 shares of ConocoPhillips common stock, representing a 15% premium to closing share prices on October 13, the company said.

“The 15% premium for the acquiree compares favourably with recent transactions, such as Devon’s merger with WPX, but is modest by historical standards. Until recently, we would have considered a premium of 20%-30% to be the norm for an exploration and production company takeover,” said Dave Meats, director at Morningstar.

“But the environment for E&Ps has deteriorated recently, following the pandemic-related collapse in crude prices. And for Concho specifically, the upcoming presidential election could be more of a threat than it is for most shale companies because Concho has much more exposure to federal land than its peers do,” Meats added.

The transaction is expected to close in the first quarter of 2021.

ConocoPhillips shares ended 3.16% lower at $32.7 on Monday; the stock is down about 50% so far this year. Concho Resources shares closed 2.75% lower at $47.26 on Monday; the stock is down about 46% so far this year

ConocoPhillips stock forecast

Twelve analysts forecast the average price in 12 months at $47.91 with a high forecast of $56.00 and a low forecast of $37.00. The average price target represents a 46.51% increase from the last price of $32.70. From those 12 equity analysts, 11 rated “Buy”, one rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $47 with a high of $69 under a bull scenario and $23 under the worst-case scenario. Citigroup raised their stock price forecast to $39 from $37 and Truist Securities upped their price objective to $55 from $52.

Several other analysts have also recently commented on the stock. ConocoPhillips had its target price decreased by stock analysts at Bank of America to $46 from $50. The brokerage currently has a “neutral” rating on the energy producer’s stock. KeyCorp started coverage on ConocoPhillips, issuing an “overweight” rating and a $46.00 price objective for the company. At last, Raymond James raised their target price to $48 from $46 and gave the company an “outperform” rating.

Concho Resources stock forecast

Twelve analysts forecast the average price in 12 months at $67.73 with a high forecast of $79.00 and a low forecast of $55.00. The average price target represents a 43.31% increase from the last price of $47.26. From those 12 equity analysts, 11 rated “Buy”, one rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $64 with a high of $81 under a bull scenario and $22 under the worst-case scenario. Citigroup lowered their stock price forecast to $67 from $72 and JP Morgan establishes December 2021 price target of $68 vs December 2020 price target of $65.

Several other analysts have also recently commented on the stock. Concho Resources had its target price dropped by Bank of America to $65 from $70. The firm presently has a “buy” rating on the oil and natural gas company’s stock. Mizuho downgraded Concho Resources from a “buy” rating to a “neutral” rating and boosted their price target for the company from $68 to $69.

Analyst Comments

“ConocoPhillips’ (COP) announced the acquisition of Concho Resources (CXO) fortifies the company’s leadership position within US energy. Pro-forma, a diverse portfolio of low-cost resource + ESG focus differentiates COP in lower growth, returns focused shale ‘era.’,” said Devin McDermott, equity and commodities Strategist at Morgan Stanley.

“ConocoPhillips checks all the boxes for sustained outperformance: excellent management, disciplined investment, and consistent return of cash coupled with high quality, low-cost portfolio that can deliver an attractive combination of FCF and growth.”

“Attractive value proposition even in the current commodity price environment with leverage to any rally in oil and with resiliency should price remain low. Strong balance sheet. While management received some investor pushback in 2019 for building an $8 billion strategic cash balance, that disciplined strategy is paying off in 2020 – creating financial and strategic flexibility,” McDermott added.

Upside and Downside Risks to ConocoPhillips

Upside: 1) Higher commodity prices. 2) Upside to Alaska resource discovery. 3) Better well performance in Lower 48 – highlighted by Morgan Stanley.

Downside: 1) Lower commodity prices. 2) Cost inflation. 3) Alaska discovery has less potential resources than expected. 4) Federal acreage exposure in Alaska. 5) Worse than expected well results in the Eagle Ford, Permian, and Bakken.

Upside and Downside Risks to Concho Resources

Upside: 1) Reduced operating and development costs. 2) Consistent execution. 3) Non-core divestitures, with cash returned to shareholders – highlighted by Morgan Stanley.

Downside: 1) Downside to Permian natural gas price differentials. 2) Elevated non-operated spending. 3) Regulation preventing development on Federal acreage.

Check out FX Empire’s earnings calendar

E-mini S&P 500 Index (ES) Futures Technical Analysis – Momentum Shifted to Downside on Monday

December E-mini S&P 500 Index futures are trading lower late Monday as investors worried that they might not see a coronavirus economic stimulus deal before the November 3 presidential election. While House Speaker Nancy Pelosi said Sunday that she was optimistic legislation could be pushed through before the election, but that an agreement would have to come by Tuesday for that to happen.

At 19:46 GMT, December E-mini S&P 500 Index futures are at 3420.00, down 42.25 or -1.22%.

A spokesperson told Fox on Monday that the White House was “cautiously optimistic” that Pelosi was moving toward making a deal.

Daily December E-mini S&P 500 Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, but momentum is trending lower. A trade through 3541.00 will signal a resumption of the uptrend. The main trend changes to down on a trade through 3198.00. This is highly unlikely but there is room for a normal 50% to 61.8% correction of the current rally.

The minor trend is down. This accounts for the shift in momentum. The minor trend changed to down when sellers took out the last swing bottom at 3431.50. The new minor swing top is 3508.50.

The short-term range is 3576.25 to 3198.00. The index is currently testing its retracement zone at 3431.75 to 3387.00. This area is controlling the near-term direction of the index.

The second minor range is 3198.00 to 3541.00. Its retracement zone at 3369.50 to 3329.00 is the second potential downside target.

Short-Term Outlook

Based on Monday’s price action, the direction of the market the next session will likely be determined by trader reaction to the short-term Fibonacci level at 3431.75. The near-term direction, however, will likely be determined by trader reaction to the 3431.75 to 3387.00 retracement zone. We have to leave some room due to the possibility of a support base forming.

Bullish Scenario

A sustained move over 3431.75 will indicate the presence of buyers. This move won’t get interesting unless buyers can overcome 3508.50.

Bearish Scenario

A sustained move under 3431.75 will signal the presence of sellers. This could lead to a labored break due to a series of retracement levels, but not necessarily a change in trend to down. The potential support levels include 3387.00, 3369.50 and 3329.03.

For a look at all of today’s economic events, check out our economic calendar.

US Stock Market Overview – Stocks Slide Driven Lower by Communications on Stimulus Fears

 

US stocks moved lower on Monday as concerns that a stimulus deal would need to wait until after the November general election weighed on shares. House Speak Nancy Pelosi has given the White House a 48-hour timeline to move forward with a deal. The spread of COVID-19 has accelerated which is reducing the chance of a V-shaped recovery.

Over the past 2-weeks, the stock market has been starting higher and ending lower, which is not a good sign. All sectors in the S&P 500 index were lower, led down by communications and energy, utilities were the best performing sector in a down tape. The VIX volatility index surged higher rising 2-points and recapturing the 29% level. The US home building index released by the FAHB surged to the high level on record but the gain was not strong enough to buoy housing sector stocks on Monday.

Home Building Index Surges

Homebuilders continue to see expanding demand and are struggling to keep up with housing starts. The Homebuilder sentiment set a record high for the second month in a row, jumping to 85 in October on the NAHB/Wells Fargo Housing Market Index. September and October are the first two months the index has ever been above 80. This is a diffusion index with levels above 50 showing an expansion. The index stood at 71 in October 2019. All three components of the index either set records or matched their highest readings.

The current sales conditions rose 2 points to 90. Sales expectations in the next six months increased 3 points to 88, and buyer traffic was unchanged at 74. Builders are struggling to ramp up production, and while housing starts and building permits are rising they are not even close to meeting demand.

S&P 500 Price Forecast – Continue to Face Headwinds at 3500

The S&P 500 did rally a bit during the trading session on Monday, reaching towards the 3500 level. That is a large, round, psychologically significant figure that will attract a certain amount of attention, and it has caused a bit of a reaction every time we approach it. Furthermore, it is worth noting that the Thursday candlestick was a hammer, the Friday candlestick was a shooting star, and now the Monday candlestick is looking very much like one that is showing resistance as well. Because of this, the technical analysis looks like we are certainly looking at a range as well.

S&P 500 Video 20.10.20

This setup a nice trade for those of you looking towards short-term charts, as we can go back and forth and show opportunities in both directions. Although one could make an argument that we have just formed a “double top”, I think that is probably jumping the gun. I would anticipate that there is a lot of support below at the 3400 level, and it is likely that we would find the 50 day EMA reaching towards that area by the time we get there. All things being equal, we are still very much in an uptrend, so that is something worth paying attention to.

At this point, the market is focusing on the idea of whether or not we get some type of stimulus, and of course the value of the US dollar. If the US dollar continues to strengthen, then it is very likely that will continue to weigh upon the stock market.

Halliburton Posts Fourth Straight Loss in Q3 as Oil Rout Drags Demand

Halliburton Co, one of the world’s largest providers of products and services to the energy industry, reported a loss for the fourth consecutive time in the third quarter as demand slowdown due to the COVID-19 pandemic and lower oil prices have hurt businesses.

The U.S. largest hydraulic fracturing provider reported a net loss of $17 million, or $0.02 per diluted share, for the third quarter of 2020. This compares to a net loss for the second quarter of 2020 of $1.7 billion, or $1.91 per diluted share. Adjusted net income for the third quarter of 2020, excluding severance and other charges, was $100 million, or $0.11 per diluted share.

Halliburton’s total revenue in the third quarter of 2020 was $3.0 billion, a 7% decrease from revenue of $3.2 billion in the second quarter of 2020, the company said.

At the time of writing, Halliburton shares traded 3.55% higher at $12.68 on Monday; however, the stock is down about 50% so far this year.

Its rival, Schlumberger reported a loss for the third consecutive time in the September quarter as a prolonged period of lower crude prices due to COVID-19 disruptions caused clients to suspend drilling activities.

Executive comments

“The pace of activity declines in the international markets is slowing, while the North America industry structure continues to improve, and activity is stabilizing. We have a strong international business, a lean North America operation, and an efficient capital deployment strategy, all enabled by continued adoption of leading digital technologies that benefit our customers and Halliburton,” said Jeff Miller, Chairman, President and CEO.

“We believe executing on our strategic priorities will boost our earnings power reset and free cash flow generation today and as we power into and win the eventual recovery,” concluded Miller.

Halliburton stock forecast

Seventeen analysts forecast the average price in 12 months at $15.28 with a high forecast of $22.50 and a low forecast of $11.50. The average price target represents a 21.80% increase from the last price of $12.55. From those 17 equity analysts, five rated “Buy”, 11 rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $14 with a high of $20 under a bull scenario and $4 under the worst-case scenario. Halliburton’s stock price forecast has been raised by equity research analysts at Cowen and Company to $20 from $19.

Several other analysts have also recently commented on the stock. BMO Capital Markets initiated coverage on Halliburton, issuing a “market perform” rating and a $14 price objective for the company. Goldman Sachs Group raised Halliburton from a “buy” rating to a “conviction buy” rating in August. HSBC increased their stock price forecast to $13.70 from $9.50 and gave the company a “hold” rating in July.

Analyst Comments

“Outsized exposure to deteriorating North America (NAm) markets impacts Halliburton’s results more meaningfully vs. less exposed peers, in our view, and we continue to see greater downside revision risk for those focused on this market. Few bullets left to offset deteriorating fundamentals: Halliburton is winding down a major cost-cutting program in NAm, which suggests to us its ability to further cut overhead as US activity trends lower is limited,” said Connor Lynagh, equity analyst at Morgan Stanley.

“We believe the company’s exposure to areas in high demand (i.e. Ventilators, Patient Monitoring, CT and X-Ray) puts the company in an attractive risk-reward positioning relative to other companies in our sector over the next 12 months.”

Upside and Downside Risks

Upside: 1) Signs of a bottom in NAm pressure pumping activity and pricing. 2) International contract awards. 3) Bolt-on M&A – highlighted by Morgan Stanley.

Downside: 1) Further pricing pressure and activity declines, particularly in Nam. 2) Undisciplined project bidding. 3) Failure to deliver on cost savings goals. 4) Commodity price/cyclical risk.

Check out FX Empire’s earnings calendar

Dollar Comes Back to the Bearish Territory

Nasdaq is still below dynamic and horizontal resistance

SP500 is on a good way to break crucial levels and go higher

DAX sharply bounces from the 12960 points

Dollar Index ignores the inverse head and shoulders and creates a flag. Situation here is bearish

EURUSD are flirting with important dynamic resistance

GBPUSD are one step from breaking 1,3 – the most important level in the past few weeks

AUDUSD with a small bullish correction but the main sentiment is very negative

EURAUD makes another attempt to escape from the long-term rectangle

EURCHF breaks crucial support and later tests it as a resistance. Pretty standard price action move

Gold tries to go higher but the upper line of the pennant looks well defended

Anticipation Builds Ahead Of Microsoft Earnings

Dow component Microsoft Corp. (MSFT) reports fiscal Q1 2021 earnings on Oct. 27, with analysts expecting a profit of $1.36 per-share on $35.8 billion in revenue. The stock sold off more than 6% after the Q4 release in July, despite beating top and bottom line estimates. Market watchers blamed the sell-the-news reaction on overly-high expectations for the cloud and commercial products divisions. The stock recovered those losses into August and posted an all-time high in early September.

Microsoft And TikTok

Buying pressure resumed after Mr. Softee threw its hat into the ring in the TikTok drama, seeking to acquire the company while jumping through political hoops in China and the United States. Oracle Inc. (ORCL) eventually won the coveted prize but continued conflict between nations suggests that Microsoft was lucky to walk away empty-handed and redirect attention to core services and the Nov. 10 release of the next-generation Xbox console.

Morgan Stanley analyst Keith Weiss discussed the revenue boost expected from the Xbox release earlier this month, stating, “The fiscal year 2021 console cycle and the addition of Bethesda highlight incremental growth opportunities for Microsoft’s gaming franchise, w/ a potential ~$80 billion value for the gaming subscription biz alone. Our bottom up work suggests the console cycle should not derail a broader margin expansion story. Overweight.”

Wall Street And Technical Outlook

Wall Street has been bullish on the big tech powerhouse for years, with a current ‘Moderate Buy’ consensus based upon 23 ‘Buy’ and 3 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines at this time. Price targets currently range from a low of $208 to a Street-high $260 while the stock is set to open Monday’s U.S. session about $16 below the median target. There’s plenty of potential upside after a strong strong quarterly report, given this humble placement.

Microsoft broke out above the first quarter high at 190.65 in June and added more than 40 points into the September peak. It then sold off with broad benchmarks, testing the 50-day moving average for more than 5 weeks before surging off a small base earlier this month. Accumulation readings are hovering near new highs, supporting continued upside, but monthly cycles are flashing overbought technical readings. This conflict suggests two-sided action through most or all of the fourth quarter.

For a look at all of today’s economic events, check out our economic calendar.

U.S. Stocks Set To Open Higher On Renewed Stimulus Hopes

Traders Hope For A New Round Of Stimulus

Stimulus talks are back into spotlight as U.S. President Donald Trump has recently signaled that he wanted a bigger stimulus package. It remains to be seen whether Republicans will agree to such a deal, but Donald Trump stated that he could convince them.

The American economy clearly needs another round of economic stimulus, and the markets are convinced that Republicans and Democrats will ultimately agree to a compromise deal. However, the timing of such agreement is unclear so any indications that the deal may be coming soon are bullish for stocks.

Not surprisingly, S&P 500 futures are gaining ground in premarket trading as traders increase their stock purchases on hopes for a big coronavirus aid package.

Data From China Provides Additional Support To Stocks

Today, China reported that its GDP increased by 4.9% year-over-year in the third quarter. While analysts expected that GDP would grow by 5.2%, China’s growth is still impressive given the challenges posed by the pandemic.

Meanwhile, China’s Retail Sales increased by 3.3% year-over-year in September while Industrial Production grew by 6.9%, suggesting that Chinese economy continued to recover from the heavy blow dealt by the virus.

Many investors view China as an example of what will happen in other countries once they manage to contain the virus so positive data from China is usually bullish for stocks across the globe.

European Countries Introduce New Restrictions In Their Battle Against The Second Wave

European countries have so far managed to avoid nationwide lockdowns but new restrictions are introduced on a weekly basis.

Italy has provided its mayors with the power to shut public squares from 9 p.m. and introduced other curbs. UK is set to announce additional measures in Wales and Manchester as it tries to contain the growing number of daily cases. Ireland will also impose additional nationwide measures in the upcoming days.

At this point, the world markets have mostly ignored the potential negative impact from the second wave of the virus in Europe. While closures of pubs and gyms could be devastating for their owners, the negative impact on the whole economy is limited.

However, traders will continue to monitor the situation closely as potential nationwide lockdowns could deal huge damage to the European economy and cause a sell-off in the world markets.

For a look at all of today’s economic events, check out our economic calendar.

S&P 500 Testing Critical Fractals after Bounce at 21 EMA

The S&P 500 made a critical break above the 21 ema zone. The bulls are in clear control but can price action break above the critical resistance trend line (orange)?

Let’s review the key decision zones and expected wave patterns on the S&P daily and 4 hour charts.

Price Charts and Technical Analysis

S&P 500 daily chart

The S&P 500 has made a break, pullback and bounce pattern at the 21 ema zone. Price action must now break above the resistance Fractal for a confirmed bullish continuation (green arrow) within wave 5 (pink). The main targets are at the round 30,000 level and 30,750.

If price action breaks below the 21 ema zone (orange arrow), then the wave 4 (pink) pattern is not completed. In that case, we expect price action to retrace and test the long-term moving averages.

A bullish bounce (blue arrows) at the support zone could confirm an ABC pattern via the wave 4 at a later point (pink 4’). A break below the long-term moving averages, however, would invalidate (red x) the bullis outlook.

On the 4 hour chart, price action must break above the resistance trend lines and fractals (orange line) for a bullish breakout (green arrows) within the wave 5 (purple). A break below the 21 ema zone could trigger a deeper retracement (orange arrows).

A bullish bounce (blue arrows) at the long-term moving averages support zone (blue boxes) could confirm a wave 4 at a later spot (4’ purple). But a break below that zone, however, indicates a bearish ABC (red) correction that could take the price way lower. This could indicate the start of a deeper correction.

S&P 500 4 hour chart

Good trading,

Chris Svorcik

The analysis has been done with the indicators and template from the SWAT method (simple wave analysis and trading). For more daily technical and wave analysis and updates, sign-up to our newsletter

For a look at all of today’s economic events, check out our economic calendar.

Could the DXY be Set to Move Higher as Election Night Approaches?

In less than a month, perhaps one of the most hotly contested and acrimonious presidential elections in recent memory is due to be held during a global pandemic and against a backdrop of civil unrest. On November 3, President Donald Trump will seek to maintain his grip on the reins of power for another four years as Democratic nominee Joe Biden hopes to unseat him.

A look back to 2016

What will this mean for the markets? It’s still anyone’s guess, but looking back to 2016’s election can perhaps provide us with an insight as to what may be in store. Some of you may remember that the recent bout of dollar strength we saw earlier this year at the height of the coronavirus crisis has only been eclipsed once this past decade. In mid-March, the DXY breached the 100 level to top out at around 103 by the end of the month. The last time the dollar rallied as hard was in the wake of the 2016 election following President Trump’s victory, where it topped out just shy of 104. To get anywhere near to those levels prior to that, you have to go all the way back to the end of 2002.

Weekly Chart of DXY going back to 2016. Source: Trading View.

Those of you following US equities back in 2016, will also recall what, at the time, seemed like a worrying sell-off, which hindsight has revealed to be a mere blip as markets shook off the shock of a Trump victory and promptly rallied to new highs. So, we had the risk-off combination of a dollar rally and equity sell-off until markets came to terms with the fact that the sky was not indeed falling, and that the new commander-in-chief may just be good for business. But will this time be as cut and dried?

A much more volatile 2020

As you can appreciate, what we have now is a much more volatile situation. What we’ve seen in the US since March is a V-shaped recovery in equities combined with a downturn in dollar strength. The US dollar index hit lows of 91.70 at the beginning of September and has been coiled up in a range between 91 and 94 since July. The S&P 500 is currently trading around 58% higher than it was at the lows in March (also up some 70% since the November 2016 sell-off during the last presidential election).

Meanwhile, the situation on the ground for your average American couldn’t be starker. US unemployment throughout 2016 hovered at around 4.5 million, while it currently finds itself at 7.9 million, having fallen from a staggering 14.7 million back in April. Despite resounding calls for more fiscal stimulus, the package of unemployment benefits known as the Cares Act was brought to a xclose at the end of July and now appears to be off the agenda until after the election.

US unemployment data 2016-2020.

The United States and its population finds itself in a much more precarious situation in 2020 than it did in 2016. Aside from the economic consequences of COVID-19 and a cyclical downturn that seemed to be on the cards from back in 2018, recent events have revealed it to be more polarized along ideological, racial and generational lines. Even something as seemingly objective as the science behind pandemics and how to stem their spread has become a highly politicised issue.

Markets haven’t priced in a chaotic election

But it’s the election itself that has market participants most concerned, with some fearing that a contested election result could result in nationwide disruption and market chaos. The distinctly uncollegiate first debate between Biden and Trump, in which neither candidate seemed willing to advise their more militant followers to stand down should a conclusive victor not emerge on the night, seemed to provide a confirmation of these concerns.

There has been a great rise in the casting of postal ballots due to changes in the law since 2016 to allow for, or expand, early voting by mail in certain states. These changes, coupled with the pandemic, mean that a certain contingent of voters (which skew slightly Democrat) have been casting their votes a month before the election. The manner in which postal ballots are processed makes it increasingly likely that a clear victor will not be announced on the night or even the morning after November 3.

This is particularly so if the numbers are close. In the event of anything other than a landslide for either candidate, we could see a situation in which Trump or Biden could refuse to concede defeat. Indeed, it has been reported that former presidential candidate, Hillary Clinton, has advised Biden to do just this and not concede on the night until all of the postal ballots are counted.

With US stock markets at or around their all-time highs and the DXY trading at 2-year lows, it’s becoming clear that markets have yet to fully price in the possibility that this election may not run as smoothly or be resolved as conclusively as the previous one was; and that’s despite the fact that Trump’s 2016 victory was something of a wild card that markets failed to foresee. The moral of the story?

Expect volatility to rise as the election draws near, and be prepared for surprises. Incidentally, this is true even if you don’t trade the dollar or equities. Even assets, like cryptocurrencies, which are usually removed from the above concerns, are likely to be shaken should we experience a messy and chaotic presidential election. Also, be aware that, excluding 2008, the US dollar has risen between 2% and 12% every year following a presidential election since 1980.

by Giles Coghlan, Chief Currency Analyst, HYCM

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Doji Clusters Show Clear Support Ranges On The S&P500

Clusters of Doji shaped candles have, for centuries, illustrated very clear levels of support/resistance in price action.  Whenever multiple Doji candles appear in a cluster-like formation, traders should pay attention to these levels as future support/resistance ranges for price action.  In the case of the S&P500 E-Mini Futures Daily Chart, we can clearly see three separate support zones – the highest one being right where price closed on Friday (near 3475).

As the US elections near, we do expect increased volatility to become a factor in the US markets.  Currently, our predictive modeling systems are suggesting a Bullish trend bias is in place in the markets.  Therefore, we expect the bias of the trend to continue to push higher.  Yet, these Doji Cluster support levels become very clear downside targets if increased volatility prompts any broad market rotation over the next few days/weeks. These three levels are :

  • 3445~3495
  • 3330~3390
  • 3185~3225

We are suggesting that IF any deeper market rotation takes place, support near these Doji Cluster levels would likely act as a major price floor – prompting some price support and a potential for a quick upside price reversal near these levels.  If the lowest level, near 3200, is breached by deeper price rotation, then a new price correction phase may setup.

Traders should use these levels to prepare for the expected volatility spike as we near the US elections.  We believe price will become more volatile as traders/investors attempt to reposition assets away from risk before the elections.  We are particularly concerned of a breakdown in the Technology sector related to recent threats to increase liability related to a special clause (230) that protects companies like Facebook and Twitter from the same Publisher Liability as major newspapers.

Given the renewed focus on these social media sites and the content posted/restricted on these sites, it appears they have become the target of investigations and the US Congress.  This could lead to some very big volatility spikes in the NASDAQ and the Technology sector over the next few weeks and months.  This could result in some very good trade setups as price levels may rotate wildly because of the elections and the pending decisions related to these social media firms.

Want to learn how we help traders stay ahead of these bigger trends and setups?  Visit www.TheTechnicalTraders.com to learn more about my swing trade alert and passive long-term signals services. Stay ahead of the market and protect your wealth by signing up today!

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

NOTICE AND DISCLAIMER: Our research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research.  It is provided for educational purposes only.

Caterpillar Testing the 2018 All-Time High

Dow component Caterpillar Inc. (CAT) rallied more than 2% in Friday’s U.S. session after Wells-Fargo pounded the table, upgrading the heavy equipment manufacturer to ‘Overweight’. The rally stretched within 5 points of January 2018’s all-time high at 173.24, initiating a test that could eventually trigger a major breakout. However, market players may need to tread lightly because this level marks resistance while accumulation has failed to keep up with bullish price action.

Caterpillar Slumping 2020 Profits

The company reports Q3 2020 earnings on Oct. 27, with analysts expecting the company to report a profit of $1.15 per-share on $9.78 billion in revenue. That EPS performance would mark a 57% decline compared to the same quarter in 2019, raising doubts about the sustainability of a breakout. The stock is also trading nearly 40 points higher now than it was during the Q3 2019 earnings release, suggesting that short sellers will reload positions, given the right catalyst.

Well Fargo analyst Andy Casey outlined three reasons for higher Caterpillar prices, as follows:

  1. Revenue growth from global growth acceleration, with signs that key markets critical to the bear case are beginning to bottom, with likely growth by mid-2021 and the absence of 2020 inventory reduction actions.
  2. Expected margin improvement due to higher revenue generation across improved cost structure, although still below 2021 Investor Day target and in-line for 2022.
  3. Anticipated higher cash flow that could be allocated to enhance growth.

Wall Street And Technical Outlook

Wall Street consensus remains mixed despite the upgrade, with a ‘Moderate Buy’ rating based upon 7 ‘Buy’, 7 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $120 to a Street-high $220 while the stock ended Friday’s session more than $14 above the median $155 target. The company may need to fire on all cylinders in next week’s earnings report in order to sustain this elevated placement.

Caterpillar is a cyclical play near an all-time high in the 11th year of a bull market that many believe is growing ‘long-in-the-tooth’. Traditionally, their performance tracks economic boom and bust periods, as well as developments in BRIC countries where heavy earth movers are needed for industrialization. 2020 China growth is stronger than expected after pandemic shutdowns but North America and Europe are posting sub-par numbers, adding risk for breakout buyers.

For a look at all of today’s economic events, check out our economic calendar.

Netflix Stock Price Forecast Raised to $630 at Morgan Stanley; $840 in Best Case Scenario

Morgan Stanley raised their stock price forecast on Netflix to $630 from $600, assigning an “Overweight” rating to the Internet television network’s stock and foresees short and long-term benefits to Netflix growth and earnings power due to the changes brought on by the COVID-19 pandemic.

The world’s leading streaming entertainment service company is set to report its third-quarter results on October 20. According to Zacks Research, Netflix forecasts Q3 earnings to be $2.09 per share, implying over 40% of year-over-year growth, but the Zacks consensus estimate was pegged at $2.12 per share. The Zacks consensus estimate for September quarter revenues was pegged at $6.38 billion, over 20% higher than a year earlier.

“Price increases as a lagging indicator… Our ‘Overweight’ thesis assumes Netflix has additional pricing power. We believe signals that Netflix looks for before raising prices are engagement growth and falling churn, trends that indicate an increase in “value” delivered to the consumer. Recent price increases in Australia and Canada, 2% and 4% of the estimated paid member base respectively, indicate to us that engagement levels and engagement growth rates are likely high and accelerating in these markets,” said Benjamin Swinburne, equity analyst at Morgan Stanley.

“We realize the 2019 rate adjustments led to slightly more elevated churn levels, particularly in the US, that sustained into subsequent quarters. However, we believe Netflix’s competitive moat is perhaps deeper than ever today. Production delays due to (the) COVID-19 have likely impacted its competitors more significantly than Netflix. Finally, given the size of the base business price increases create substantial long-term value.”

Netflix’s shares closed 2.05% lower at $530.79 on Friday; however, the stock is up over 60% so far this year.

Twenty-six analysts forecast the average price in 12 months at $564.83 with a high forecast of $670.00 and a low forecast of $220.00. The average price target represents a 6.41% increase from the last price of $530.79. From those 26, 19 analysts rated “Buy”, four rated “Hold” and three rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $840 under a bull scenario and $400 under the worst-case scenario. Other equity analysts also recently updated their stock outlook. Netflix had its price objective lifted by KeyCorp to $634 from $590. They currently have an overweight rating on the Internet television network’s stock.

Pivotal Research boosted their stock price forecast on shares of Netflix to $650 from $600 and gave the stock a buy rating. Loop Capital raised their price objective to $600 from $500 and gave the company a buy rating.

“We believe share performance is highly dependent on increasing global membership scale. Proven success in the US and initial international markets provides a roadmap to success in emerging markets, and scale should allow Netflix (NFLX) to leverage content investments and drive margins,” Morgan Stanley’s Swinburne added.

“Higher global broadband penetration should increase the NFLX addressable market, driving member growth and providing further opportunity given NFLX’s global presence. Longer-term, we see the ability to drive ARPU growth, particularly given increased original programming traction.”

The success of programming drives increased subscriber growth and pricing increases lead to revenue upside, driving – were highlighted by Morgan Stanley as two major downside risks.

Pricing increases drive elevated churn, increased competition drives higher pricing for exclusive content lowering margins, challenges in newer markets negatively impacts member growth expectations, were the major downside risks.

Check out FX Empire’s earnings calendar

E-mini S&P 500 Index (ES) Futures Technical Analysis – Trader Reaction to 3486.25 Sets the Tone on Monday

December E-mini S&P 500 Index futures edged lower on Friday, diverging from the benchmark cash index as investors remained disappointed by the lack of progress toward a fiscal stimulus deal. There was also an air of caution over the lack of clarity regarding the timeline for the development of a coronavirus vaccine. Underpinning prices however was a much better-than-expected retail sales report.

On Friday, December E-mini S&P 500 Index futures settled at 3462.25, down 13.25 or -0.38%.

In other news, third-quarter reporting season burst from the starting gate this week, with 49 of the companies in the S&P 500 having reported. Of those, 86% have cleared the low bar set by expectations, according to Refinitiv, Reuters reported.

Daily December E-mini S&P 500 Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 3541.00 will signal a resumption of the uptrend. The main trend will change to down on a move through 3198.00. This is highly unlikely, but the market is in a position to change the minor trend to down.

The minor trend is also up. A trade through 3431.50 will change the minor trend to down. This will also shift momentum to the downside.

The minor range is 3541.00 to 3431.50. The close under its 50% level or pivot at 3486.25 makes this level new resistance.

On the downside, the first target is the short-term Fibonacci level at 3431.75. This is followed by the short-term 50% level at 3387.00.

Short-Term Outlook

Our focus will be on 3486.25 on Monday because of the possibility of a secondary lower top. This would suggest the presence of counter-trend sellers.

If the selling pressure continues on Monday then look for the move to extend into the support cluster at 3431.75 to 3431.50. Since the main trend is up, we could see a technical bounce on the first test of this area, but if 3431.50 fails as support then look for the selling to possibly extend into the 50% level at 3387.00. A failure at this level will suggest a bigger break is coming.

Overcoming 3486.25 will signal the presence of buyers. This could create the momentum needed to challenge the top at 3541.00.

For a look at all of today’s economic events, check out our economic calendar.

The Week Ahead – U.S Politics, COVID-19, Brexit, and Private Sector PMIs in Focus

On the Macro

It’s a busy week ahead on the economic calendar, with 57 stats in focus in the week ending 23rd October. In the week prior, 56 stats had been in focus.

For the Dollar:

It’s a relatively quiet week ahead on the economic data front.

On Tuesday, Wednesday, and Thursday, housing sector figures for September are in focus.

With mortgage rates hovering close to historic lows, the numbers are unlikely to have a material impact on the Dollar.

On Thursday, however, U.S jobless claims figures will influence ahead of private sector PMIs on Friday.

October’s prelim services, manufacturing, and composite PMIs are due out at the end of the week.

Expect the Services PMI to be the key driver. The markets will be looking for a pickup in service sector activity…

Away from the economic calendar, we are just over 2-weeks away from the U.S Presidential Election. Wednesday’s final live televised Presidential debate will garner plenty of attention as will chatter from Capitol Hill. We can also expect increased interest in the Senate Election polls.

The Dollar Spot Index ended the week up by 0.67% to 93.682.

For the EUR:

It’s also a relatively busy week ahead on the economic data front.

On Tuesday, German wholesale inflation figures are due out ahead of a busier 2nd half of the week.

On Thursday, Germany is back in focus, with November consumer climate figures due out.

Prelim October private sector PMIs from France, Germany, and the Eurozone will be the key drivers on Friday, however.

We can expect plenty of sensitivity to the numbers. A new spike in new COVID-19 cases in France and other parts of the EU may have impacted activity at the start of the quarter.

Away from the economic calendar, Brexit and COVID-19 will need monitoring throughout the week.

The EUR/USD ended the week down by 0.91% to $1.1718.

For the Pound:

It’s a busy week ahead on the economic calendar.

The markets will have to wait until Wednesday, however, for the first set of numbers.

Inflation figures for September are due out ahead of CBI industrial trend orders on Thursday.

We would expect the Pound to be sensitive to the inflation figures ahead of a busy end to the week.

On Friday, retail sales figures for September and prelim October private sector PMIs will provide direction.

With the BoE open to negative rates, dire numbers will test support for the Pound.

Of greater influence in the week, however, will be Brexit and COVID-19 news.

The GBP/USD ended the week down by 0.93% to $1.2915.

For the Loonie:

It’s a relatively busy week ahead on the economic calendar.

At the start of the week, wholesale sales figures for August are in focus on Monday.

We don’t expect too much influence from the numbers, however.

On Wednesday, September inflation and August retail sales figures will provide direction.

From elsewhere, expect GDP numbers from China and prelim private sector PMIs from the Eurozone and the U.S to also influence.

Away from the economic calendar, risk appetite will likely be dictated by COVID-19 and the U.S Presidential Election polls. There’s also the final presidential debate to consider on Wednesday.

The Loonie ended the week down by 0.52% to C$1.3189 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a particularly quiet week ahead on the economic calendar.

There are no material stats due out of Australia to provide the Aussie with direction.

The lack of stats will leave the Aussie Dollar firmly in the hands of market risk sentiment in the week.

Expect China’s GDP numbers and prelim PMIs from the Eurozone and the U.S to influence

On the monetary policy front, the RBA meeting minutes at the start of the week will garner interest. There has been the talk of an RBA move next month, the minutes could reveal what is on the cards…

The Aussie Dollar ended the week down by 2.20% to $0.7081.

For the Kiwi Dollar:

It’s also a relatively busy week ahead on the economic calendar.

In the 1st half of the week, 3rd quarter business confidence figures are due out. A pickup in confidence would provide support to the Kiwi ahead of a busy Friday.

Trade data for May and 3rd quarter inflation figures will influence at the end of the week.

While the stats will provide direction, however, economic data from China and COVID-19 will likely be the key drivers.

The Kiwi Dollar ended the week down by 0.96% to $0.6602.

For the Japanese Yen:

It is a relatively quiet week on the economic calendar.

Trade data for September will draw interest at the start of the week ahead of inflation at the end of the week.

We don’t expect the numbers to have too much influence on the Yen, however.

The key driver for the Japanese Yen, however, will be COVID-19 news and U.S politics.

The Japanese Yen ended the week up by 0.21% to ¥105.40 against the U.S Dollar.

Out of China

It’s a busy week ahead on the economic data front.

3rd quarter GDP numbers due out on Monday will be the key driver for the Yuan and market risk sentiment.

September’s industrial production, retail sales, and unemployment figures will also influence.

Barring particularly dire numbers, the fixed asset investment numbers should have a muted impact.

On the monetary policy front, the PBoC is in action on Tuesday. The markets are expecting the PBoC to leave loan prime rates unchanged. Any unexpected rate cut could spook the markets…

The Chinese Yuan ended the week down by 0.04% to CNY6.6976 against the U.S Dollar.

Geo-Politics

UK Politics:

On Friday, Boris Johnson announced that Brexit negotiations were over. Downing Street added the EU chief negotiator Barnier does not need to return to London in the week ahead.

Following the EU’s attempts to leave the ball in Britain’s court, with Fisheries a key issue, it now rests with the EU to compromise. Johnson has been clear that it would not leave fishing access unchanged, despite Macron’s attempts to strong-arm Britain into yielding.

For French fishermen, it would ultimately mean no access to UK fisheries should Britain leave without a deal…

Also at the start of the week, the British Prime Minister is due to announce more containment measures. With the number of new COVID-19 cases continuing to rise, further restrictions would be Pound negative.

U.S Politics

After last week’s individual town hall sessions, the final live televised debate will take place on Wednesday.

It will be a chance for Trump to narrow the gap ahead of the 3rd November Election.

If past performance is any indicator of future performance, however, it could just give Biden a greater edge.

As the markets begin to write-off a Trump victory, the focus will likely shift to the Senate Elections.

A blue wave is expected that would support further stimulus in the New Year.

The Weekly Wrap – Brexit, COVID-19, and U.S Politics Drive the Majors

The Stats

It was a busier week on the economic calendar, in the week ending 16th October.

A total of 56 stats were monitored, following 43 stats from the week prior.

Of the 56 stats, 24 came in ahead of forecasts, with 21 economic indicators came up short of forecasts. 11 stats were in line with forecasts in the week.

Looking at the numbers, 20 of the stats also reflected an upward trend from previous figures. Of the remaining 36 stats, 27 reflected a deterioration from previous.

For the Greenback, it was back into the green after 2 consecutive weeks in the red. The Dollar Spot Index rose by 0.67% to 93.682. In the week ending 9th October, the Dollar Spot Index had fallen by 0.87% to 93.057.

Market risk appetite waned in the week. There were a number of factors driving demand for the Dollar. A lack of progress towards a U.S stimulus bill and a spike in COVID-19 cases were front and center in the week.

Disappointing economic data and Brexit woes also supported the demand for the safety of the Dollar.

Out of the U.S

It was a relatively busy week on the economic data front.

Inflation figures drew interest early in the week. In the 2nd half of the week, however, jobless claims and retail sales figures were the key drivers. Prelim October consumer sentiment figures were also in focus late on Friday.

In the week ending 9th October, initial jobless claims stood at 898k, which was up from 845k from the week prior. The numbers reinforced the view that the labor market recovery had stalled.

A combination of dire labor market conditions, rising new COVID-19 cases, and a lack of further stimulus was a bad combination.

At the end of the week, retail sales impressed, however. In September, retail sales rose by 1.9%, with core retail sales rising by 1.5%. Economists had forecasted increases of 0.5% and 0.7% respectively.

Aligned with the retail sales figures was a further pickup in consumer sentiment. The Michigan Consumer Sentiment Index rose from 80.4 to 81.2 in October, according to prelim figures. The Expectations Index increased from 75.6 to 78.8.

The only negative on the day was an unexpected 0.6% fall in industrial production.

In the equity markets, the NASDAQ rose by 0.79%, with the Dow and S&P500 gaining 0.07% and 0.19% respectively.

Out of the UK

It was a relatively busy week on the economic data front.

Key stats included August unemployment rate and employment change and September claimant count figures.

While claimant counts came in lower than expected, employment fell by more than expected over the 3-months to August.

A 153k fall in employment led to an increase in the unemployment rate from 4.1% to 4.5%.

While the stats provided direction, it was ultimately Brexit and COVID-19 that sank the Pound in the week.

A continued rise in new COVID-19 cases and a new round of containment measures were Pound negative.

More significantly, however, was a lack of progress towards a Brexit agreement, with the EU pushing for more talks next week.

On Friday, Boris Johnson announced that it was time to prepare for a no-trade deal Brexit unless the EU changed its stance. Downing Street also stated that there was no point in EU negotiator Michel Barnier returning to London in the week ahead.

In the week, the Pound fell by 0.93% to $1.2915. In the week prior, the Pound had risen by 0.78% to $1.3036.

The FTSE100 ended the week down by 1.61%, partially reversing a 1.94% gain from the previous week.

Out of the Eurozone

It was a relatively busy week on the economic data front.

Early in the week, key stats included ZEW Economic Sentiment figures for the Eurozone and Germany.

The indicators flashed red for October. Germany’s Economic Sentiment Indicator fell from 77.4 to 56.1, with the Eurozone’s falling from 73.9 to 52.3. A lack of progress on Brexit and jitters over the U.S Presidential Election weighed in October.

Mid-week, industrial production figures for the Eurozone came up short of expectations, rising by just 0.7%. In July, production had jumped by 5.0%.

In the 2nd half of the week, Eurozone trade data and finalized inflation figures for September were in focus.

Inflation figures reaffirmed market concern over deflationary pressures. Trade data also failed to impress, with the Eurozone’s trade surplus narrowing from €27.9bn to €14.7bn in August.

While the stats provided direction, a marked increase in new COVID-19 cases weighed on the EUR in the week. France and other member states were forced to reintroduce containment measures amidst the 2nd wave.

For the week, the EUR fell by 0.91% to $1.1718. In the week prior, the EUR had risen by 0.94% to $1.1826.

For the European major indexes, it was a bearish week. The CAC40 and EuroStoxx600 fell by 0.22% and by 0.77% respectively, with the DAX30 declining by 1.09%.

For the Loonie

It was a quiet week on the economic data front.

Key stats included August’s foreign security purchases and manufacturing sales figures.

Neither set of numbers had an impact, however, as the fresh spike in new COVID-19 cases weighed on market risk sentiment.

The threat of a reintroduction of lockdown measures pegged back crude oil prices in the week.

In the week ending 16th October, the Loonie fell by 0.52% to end the week at C$1.3189. In the week prior, the Loonie had risen by 0.87%.

Elsewhere

It was a bearish week for the Aussie Dollar and the Kiwi Dollar.

In the week ending 16th October, the Aussie Dollar slid by 2.20% to $0.7081. The Kiwi Dollar ended the week down by a more modest 0.96% to $0.6602.

For the Aussie Dollar

It was a relatively quiet week on the economic calendar.

Key stats consumer confidence and employment figures.

It was a mixed bag for the Aussie Dollar. While consumer confidence continued to improve, employment figures were somewhat disappointing.

The unemployment rate rose from 6.8% to 6.9%, driven by a 29.5k fall in employment.

For the Aussie Dollar, it was ultimately market sentiment towards monetary policy and risk aversion that did the damage. There is the talk of an RBA next month…

For the Kiwi Dollar

It was a relatively quiet week on the economic calendar.

Key stats included electronic card retail sales figures and business PMI numbers.

The stats were Kiwi Dollar positive, with retail sales up by 5.4% and the PMI rising from 50.7 to 54.0.

While positive, however, market risk aversion pegged the Kiwi Dollar back in the week.

For the Japanese Yen

It was also a relatively quiet week on the economic calendar.

August’s core machinery orders and finalized industrial production figures were in focus.

The stats were skewed to the negative in the week. Core machinery orders rose by just 0.2%, following a 6.3% jump in July. Industrial production was revised down from 1.7% to 1.0%.

Ultimately, however, it was market risk sentiment that delivered the support for the Yen.

The Japanese Yen rose by 0.21% to ¥105.4 against the U.S Dollar. In the week prior, the Yen had fallen by 0.31%.

Out of China

It was a relatively busy week on the economic data front following last week’s holiday.

Key stats included September’s trade data and inflation figures, which were skewed to the negative.

China’s U.S Dollar trade surplus narrowed from $58.93bn to $37.00bn, driven by a 13.2% jump in imports. Exports rose by a more modest 9.9%.

Inflationary pressures also softened at the end of the quarter. China’s annual rate of inflation softened from 2.4% to 1.7% in September. Wholesale deflationary pressures picked up marginally. The producer price index fell by 2.1%, following a 2.0% decline in August.

In the week ending 16th October, the Chinese Yuan slipped by 0.04% to CNY6.6976. In the week prior, the Yuan had risen by 1.42%.

The CSI300 rose by 2.36%, with the Hang Seng gaining 1.11%.