Minimal reaction in the twenty-four hour currency market to the US presidential debate paved the way for a quiet start for European stocks on ‘ECB Day’.
The Mexican peso, the market’s gauge for the likelihood of a Trump Presidency rose during the debate, but later came off the highs as polls put ‘The Donald’ ahead. Financial markets have Hillary Clinton down as a shoe-in. Betting markets have Clinton well-ahead in bet value but more bets have been placed on Trump. This is interestingly reminiscent of the EU referendum when small betters (“the great unwashed”) correctly called the result and large betters (“experts”) didn’t.
The British pound was unmoved by the September UK retail sales data. Sales were flat in September, below expectations of a small rise whilst the small decline in August was revised higher. Adding the big splurge in July to no gains in August and September, the third quarter was the strongest for retail sales since the fourth quarter of 2014.
Traders are sitting on their hands ahead of the European Central Bank policy decision and press conference. The drop in the euro against the dollar to its lowest in nearly three months is the market positioning for hints that the quantitative easing program will be extended. Based on the ECB’s inflation forecasts, a six-month extension to September is mostly likely.
Eurozone inflation near a two-year high and the bond market sell-off, which makes more bonds available for the ECB to buy means Draghi and co. can afford to wait to extend QE until the release of staff projections in December. Inaction is euro-positive but the direction the single currency takes could depend on how Mario Draghi reacts to any questions about reports of the ECB discussing tapering.
BA-owner International Consolidated Airlines (LON:ICAG) and EasyJet (LON:EZJ) were top risers on the FTSE 100, which was otherwise split between risers and fallers. Airline shares were given a positive read-across from a surprise profit target rise by Lufthansa (LON:0H4A). It is in stark contrast to the profit warnings from Ryanair (LON:RYA) and Easyjet. As a German airline, Lufthansa is probably a net beneficiary of a weaker pound as more German tourists come for a cheap Blighty getaway.
US markets look set for a higher start ahead of a slew of corporate results including American Airlines (NASDAQ:AAL), Microsoft (NASDAQ:MSFT), PayPal (NASDAQ:PYPL), Verizon (NYSE:VZ) and Walgreens Boots (NASDAQ:WBA).
USA pre-opening levels
S&P 500: 1 point higher at 2,145
Dow Jones: 27 points higher at 18,229
Nasdaq 100: 3 points higher at 4,839
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