By Deepta Bolaky

Market Overview

Markets swung from risk-off to risk-on sentiment across the week driven by fears of peaked earnings, the slow growth in China and rising yields. With a high VIX, the week ended on a volatile note. The stock markets took a beating as corporate earnings failed to fuel confidence. Investors were mainly focused on the negative dragging the major US benchmarks lower. In the currency markets, the US dollar and Japanese Yen emerged higher as traders sought safe-havens.

Equity Markets – The remainder US earnings season and the lead-up to the Mid-term elections

October is living up to its reputation and establishing another year whereby October is the “Most Volatile Month” for the equity markets. It has been a roller coaster ride for the stocks and investors were hopeful that this month would be driven by another robust earnings season. However, peaked earnings have been a significant concern and will likely dominate the demand for riskier assets. In the US, the equity markets will probably remain volatile during the remainder of the earnings season and the upcoming midterm elections.

In the European markets, domestic politics will stay the primary driver for the markets, and the rout on Wall Street will dampen sentiment for the European stocks as well. The Asian markets continue on their slide despite China’s aggressive stimulus intervention.

As we end what was a very volatile month for equity markets decade-long bull-run, slow earnings growth and conservative forecasts appear to be the bearish drivers that could send the markets into a correction.

Currencies Markets – A busier economic calendar

The FX markets are gearing up for a busy calendar, unlike last week. Aside from geopolitical tensions, economic releases are expected to drive currencies’ price action with major events scattered across the week.

United States – NFP will be the focus

With the most critical release for the jobs report coming up on Friday, market participants will look for signs to gauge the pace of the acceleration of wage growth. The US labour market is tightening and appear to push wages on the upside. Average Earnings will also be a significant indicator of cost inflation in the markets and traders are expecting a rise from 2.8% to 3.1%. Ahead of the NFP, PCE core inflation scheduled on Monday will also provide some more insights on the US inflationary outlook. A series of key data such as ADP Employment Change, Chicago Purchasing Managers’ Index, Nonfarm Productivity, ISM Manufacturing PMI, Unemployment Rate and Trade balance will also be on the calendar.

Europe and the UK – EZ Inflation and BOE’s Interest Rate stands out

While Brexit and Italy will still draw headlines and move the local currencies, traders will also find support on a few economic events that can help in driving the currencies. The Eurozone’s GDP preliminary, CPI figures and Unemployment Rate will be released Tuesday and Wednesday respectively. The Q3 GDP numbers are expected to remain unchanged at 0.4%. Driven by higher energy prices, the headlines inflation is expected to increase slightly.

The Bank of England will announce its interest rate decision and publish its quarterly forecasts. With Brexit being the primary driver for the Sterling, the BOE’s risks for inflation might be clouded by the Brexit, and any cautionary comments might send the Pound on the offer. Pound traders might also be interested in the Budget Report, Mortgage Approvals, Consumer Confidence and Services and Manufacturing PMI dispersed across the week.

Asia & Australia – Attention will be on the central Banks Interest Rate Decision

The Bank of Japan and the People Bank of China will report their decisions on the interest rate on Wednesday and Thursday respectively. The markets are expecting a dovish BOJ as usual. In Australia, the economic calendar will be relatively busy with the New Home Sales kicking in on Monday followed by Building Permits and the RBA Assistant Governor Bullock Speech on Tuesday. The CPI figures on Wednesday will be the highlight of the week. Inflationary pressures are to remain subdued, and the statistics will probably justify the RBA staying on hold through 2019 and 2020. Thursday will see trade figures and the week will end on Retail Sales and PPI figures.

Commodities Markets

Sentiment remains cautious after a plunge in the stock markets triggered by worries about slow global growth. Oil markets’ bullish momentum reversed after heavy selling in the global equity markets. Oil prices managed to find some support as the US sanctions on Iran is looming and will likely tighten global supplies.

Gold spiked up on Friday before paring some gains. After last week’s heightened risk aversion mood, we have seen that bulls took control and the odds were stacked in favour of the gold. We have seen the yellow metal regaining its safe-haven status recently and is now consolidating $1,230 range.

Tuesday, 30 Oct 2018 Indicative Index Dividends Dividends are in Points
ASX200	WS30	US500	US2000	NDX100	CAC40	STOXX50
0	0	0.232	0.089	0.652	0	0
ESP35	ITA40	FTSE100	DAX30	HK50	JP225	INDIA50
0	0	0	0	0	0	0.28

 

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