It was definitely a tale of two continents yesterday, with European markets closing significantly lower after the euphoria at the end of last week, while US markets carried on where they left off on Friday by closing higher for the third day in a row, shrugging off a really disappointing earnings report from IBM (LONDON:IBMI), choosing to focus on the Apple Inc (NASDAQ:AAPL) numbers after the bell which didn’t disappoint, blasting past expectations as a result of the new iPhone 6.
The company sold 39.27m iPhones, 12.32m iPads and 5.52m Macs, with iPhone sales up 16% on revenues of $42.1bn. More importantly their holiday forecasts were revised higher for the October to December period suggesting a great deal of optimism about the sales of new iPad’s and iPhones in the lead-up to the Christmas period.
In Europe it was disappointing European earnings numbers from SAP (XETRA:SAPG) and Philips (NYSE:PHG) that helped undermine sentiment yesterday, as well as Boston Fed Chief Eric Rosengren pushing back on last week’s comments by St. Louis Fed Chief James Bullard by saying that he expected the Federal Reserve to stick to the current timetable on tapering and maintain the current low rates pledge.
Given that Mr Rosengren is a voting member and considered one of the more dovish members of the committee investors would do well to place greater weight on his comments than on the non-voting Mr Bullard. If Mr Rosengren appears happy with the current timetable then the bar is likely to be quite high for anything like QE4 or a taper delay.
Today’s session in Europe was set to take a fairly strong lead from the US, and open significantly higher this morning, but Chinese Q3 GDP data appears to have taken some of the edge off, coming in slightly above expectations at 7.3%, but still below the previous 7.5% in Q2, and reinforcing concerns about the health of the wider Chinese economy.
Industrial production for September came in at 8%, again a slight improvement. while retail sales still continue to look a little soft, coming in at 11.6%, below expectations, and reinforcing concerns that the Chinese economy remains quite a long way away from rebalancing towards domestic consumption.
In the UK despite the recent recovery in economic growth in GDP terms, tax revenues continue to disappoint and the latest borrowing numbers look set to reinforce that worrying narrative. The various changes in the tax code and thresholds made by the coalition government may have helped in terms of boosting the recovery, but in terms of extra cash for the Exchequer they have disappointed due to the lacklustre pace of wage growth.
Today’s UK public finance numbers for September are expected to come in slightly less than August but not by much at £9.4bn, down from £10.9bn in August. For now investors don’t seem too concerned about this, but that could well change if the economic data starts to soften further heading into Q4, particularly so close to an election that is still too close to call, and could result in another hung parliament.
In the US existing home sales are expected to rise 1% in September, up from the 1.8% decline in August.
EURUSD – we continue to trade in an upward channel from the recent lows at 1.2675 with support at 1.2705. We need to clear 1.2900 and last week’s high to target a deeper move towards 1.3000. A move back below 1.2670 could well herald a retest of the 1.2570 level. Below 1.2570 argues for a retest of the 1.2500 level and then 1.2400.
GBPUSD – the pound has broken above the 1.6130 level and looks to be heading higher towards the 1.6220/30 area and trend line resistance from the highs in June. This needs to break to help mitigate the recent downside momentum, and suggest a move towards 1.6300.
EURGBP – we continue to weaken and have fallen back below the 0.7920 area suggesting a return towards the low last week at 0.7855, on a break below 0.7900. Pullbacks could well find selling interest at 0.7940.
USDJPY – having failed to overcome the resistance at 107.60 the risk remains for a drift back lower towards last week’s low at 105.20. We really need to see a move beyond 107.60 to suggest a deeper move back towards 108.50. In the longer term it would appear the damage has been done, and we could well head all the way back to the 100.00 level.
Equity market calls
FTSE 100 is expected to open 3 points higher at 6,270
DAX is expected to open 17 points higher at 8,734
CAC 40 is expected to open 2 points higher at 3,993
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