Market panorama. 21 November 2017

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I. Market focus:

21/11/17

The beginning of Tuesday's session in the markets turned out to be calmer than Monday, due to the lack of news and reports of high importance. The most significant event of the morning session was the release of the minutes of the November monetary policy meeting of the Reserve Bank of Australia (RBA), which, however, did not contain any new information. Overall, the tone of the document was relatively dovish, confirming that the regulator has no intention to tighten its monetary policy in the near future. The minutes cited uncertainty about the outlook for inflation, along with a fairly positive view of the growth rate of the national economy. In addition, the document traditionally reiterated that any further appreciation of the Australian dollar, which by the way, had fallen by almost 7 percent against the U.S. dollar over the last three months, might result in a slower pick-up in growth and inflation. As a result, the publication of the RBA’s minutes had a little influence on the markets. It is possible that the comments of the RBA governor Philip Lowe, who will speak at 09:05 GMT, will be more informative in terms of the prospects for the monetary policy of the Australian central bank.

The main topics in the financial markets continue to be the U.S. tax reform, the Brexit talks and the formation of the new German government. At the time of writing, there has been no new information on these topics.

Apart from the speech of the RBA governor, market participants will monitor today the British data on public sector borrowing (09:30 GMT) and the U.S. report on existing home sales (15:00 GMT). The UK Inflation Report hearings (10:00 GMT) and the Fed Chair Janet Yellen’s speech (23:00 GMT) could also be important events Tuesday.

It should be noted that will be shortened due to the Thanksgiving holiday: the U.S. markets will be closed on Thursday and will have an early close on Friday. This may take its toll on the dynamics of today’s trading.


II. The market highlights are:

  • The Conference Board reported Monday its Leading Economic Index (LEI) for the U.S. rose 1.2 percent in October to 130.4 (2010 = 100), following a 0.1 percent decrease in September (revised from a 0.2 percent gain). Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board, said that “the US LEI increased sharply in October, as the impact of the hurricanes dissipated. The growth of the LEI, coupled with widespread strengths among its components, suggests that solid growth in the US economy will continue through the holiday season and into the new year.” The Conference Board Coincident Economic Index (CEI) for the U.S. went up 0.3 percent to 116.2 in October, while its Lagging Economic Index (LAG) for the U.S. increased 0.2 percent to 125.5.

  • The Conference Board announced Monday its Leading Economic Index (LEI) for China increased 1.3 percent in October to 178.2 (2010=100). That followed a 1.3 percent increase in September and a 1.3 percent gain in August. At the same time, Coincident Economic Index (CEI) for China was unchanged m-o-m at 168.1 last month, after advancing 0.7 percent in September and dropping 0.3 percent in August.

  • The Reserve Bank of Australia (RBA) published minutes from its November 7 policy meeting, at which the benchmark cash rate was expectedly left unchanged at a record-low 1.5 percent. The minutes said that the regulator’s outlook for growth in the Australian economy was largely unchanged: the GDP growth was expected to increase and average around 3 percent over the next few years. At the same time, the document cautioned that there was “considerable uncertainty around when and how quickly wage pressures might emerge and about how much these would add to inflationary pressure.” Overall, inflation was expected to increase, but only gradually, the minutes said. The RBA’s officials also reiterated their view that “any further appreciation of the exchange rate would lead to a slower-than-forecast pickup in inflation and economic activity.”


III. Market Situation
Currency Market
The currency pair EUR/USD traded near the opening level, due to the lack of new drivers. In addition, investors took a breath after yesterday's fluctuations in the pair caused by the German political impasse, the general market sentiment toward risky assets, the broad weakening of the U.S. dollar and technical factors as well. Recall, Monday brought news that the German Chancellor Angela Merkel’s efforts to form a coalition government collapsed. The pro-business the pro-business Free Democratic Party (FDP) unexpectedly pulled out of the three-way coalition talks. The parties could not compromise on immigration and refugee policy. According to the latest updates, Merkel stated she would prefer new elections to leading a minority government. Today, investors will continue to monitor the news from Germany, as well as will pay attention to the U.S. report on existing home sales and the speech of the Fed Chair Janet Yellen. Resistance level - $1.1821 (high of November 17). Support level - $1.1622 (low of November 10).

The currency pair GBP/USD traded slightly higher, supported by the broad weakening of the U.S. dollar. Market participants are awaiting the data on the UK’s public sector net borrowing for October, set to be released later today. On Wednesday, the UK Treasury chief Philip Hammond will present his tax and spending plans. On Thursday, the focus will be on the report on business investment in the third quarter and revised data on the UK’s Q3 GDP. It is forecast that the volume of investments increased by 0.4 percent q-o-q and by 1.4 percent y-o-y in Q3, while GDP grew by 0.3 percent q-o-q and by 1.5 percent y-o-y. Resistance level - $1.3260 (high of November 17). Support level - $1.3130 (low of November 15).

The currency pair AUD/USD fell moderately, reaching a low of June 14. Some pressure on the pair was put by the minutes of the November monetary policy meeting of the Reserve Bank of Australia (RBA), which cautioned that there was “considerable uncertainty around when and how quickly wage pressures might emerge and about how much these would add to inflationary pressure.” At the same time, the document said that the regulator’s outlook for growth in the Australian economy was largely unchanged: the GDP growth was expected to increase and average around 3 percent over the next few years. Regarding prices, inflation was expected to increase, but only gradually, the minutes said. The RBA’s officials also reiterated their view that “any further appreciation of the exchange rate would lead to a slower-than-forecast pickup in inflation and economic activity.” Overall, the minutes confirmed that the regulator has no intention to tighten its monetary policy in the near future. Market participants are now awaiting the speech of the RBA governor Philip Lowe, set to start at 09:05 GMT. Resistance level - AUD0.7650 (high of November 14). Support level - AUD0.7518 (low of June 9).

The currency pair USD/JPY fell slightly, due to partial profit-taking by investors after a strong increase in the pair the day before. The Japanese data had little influence on the pair performance. The Ministry of Economy, Trade and Industry reported Japan's all industry activity decreased 0.5 percent m-o-m in September, following a 0.2 percent m-o-m rise in August. Economists had forecast a 0.4 percent m-o-m fall for September. According to the report, construction output reduced 2.3 percent m-o-m in September, while industrial production slid by 1.0 percent m-o-m and tertiary (service sector) activity declined 0.2 percent m-o-m. In y-o-y terms, all industry activity growth slowed to 1.0 percent in September from 1.7 percent in the previous month. Resistance level - Y113.32 (high of November 16). Support level - Y111.65 (low of October 16).

Stock Market

Index

Value

Change

S&P

2,582.14

+0.13%

Dow

23,430.33

+0.31%

NASDAQ

6,790.71

+0.12%

Nikkei

22,416.48

+0.70%

Hang Seng

29,818.07

+1.91%

Shanghai

3,411.09

+0.55%

S&P/ASX

5,963.52

+0.30%


U.S. stock indexes closed higher on Monday, although trading was subdued ahead of the Thanksgiving holiday. Tax reform remained a key focus for investors, despite the lack of new developments. Monday's economic data were limited to leading indicators for October. The Conference Board reported its Leading Economic Index (LEI) for the U.S. rose 1.2 percent in October to 130.4 (2010 = 100), following a 0.1 percent decrease in September (revised from a 0.2 percent gain). Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board, said that “the US LEI increased sharply in October, as the impact of the hurricanes dissipated. The growth of the LEI, coupled with widespread strengths among its components, suggests that solid growth in the US economy will continue through the holiday season and into the new year.” The Conference Board Coincident Economic Index (CEI) for the U.S. went up 0.3 percent to 116.2 in October, while its Lagging Economic Index (LAG) for the U.S. increased 0.2 percent to 125.5.

Asian stock indexes closed higher on Tuesday, buoyed by the positive close on Wall Street and traders’ optimism about global growth and company earnings.  

European stock indexes are expected to trade higher in the morning trading session.


Bond Market
Yields of US 10-year notes hold at 2.36% (-1 basis points)
Yields of German 10-year bonds hold at 0.36% (0 basis points)
Yields of UK 10-year gilts hold at 1.30% (0 basis points)

Commodity Markets
Light Sweet Crude Oil (WTI) futures traded higher. Crude oil for delivery in January settled at $56.47 (+0.09%). The crude oil prices rose slightly as the U.S. dollar weakened. Market participants are awaiting data on oil inventories in the U.S. Today, the American Petroleum Institute (API) will publish its weekly data on the U.S. crude oil stockpiles. Tomorrow, the focus will be on official report on crude inventories in the U.S. from the U.S. Energy Information Administration (EIA).

Gold traded at $1280.00 (+0.26%). Gold prices rose as the U.S. currency demonstrated the broad weakening. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, fell 0.08 percent to $94.00. Since gold prices are tied to the dollar, a weaker dollar makes the precious metal cheaper for holders of foreign currencies.

IV. The most important news that are expected (time GMT0)


09:05

Australia

RBA's Governor Philip Lowe Speaks

09:30

United Kingdom

PSNB

11:00

United Kingdom

CBI industrial order books balance

13:30

Canada

Wholesale Sales

13:30

U.S.

Chicago Federal National Activity Index

15:00

U.S.

Existing Home Sales

21:45

New Zealand

Visitor Arrivals

23:00

U.S.

Fed Chairman Janet Yellen Speaks

23:30

Australia

Leading Index


Focus market

  • Euro Area trade balance surplus declined significantly in August
  • Consumer prices in China were up 1.6 percent on year in September,
  • US consumer sentiment surged in early October, reaching its highest level since the start of 2004 says UoM
  • Earnings Season in U.S.: Major Reports of the Week
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