By Naeem Aslam
European and US stock futures are trading near the flat line as investors are more in profit-take mode after Wednesday’s stellar rally on Wall Street. The focus continues to remain on the earnings season, which is still displaying a picture that US corporations are in top condition.
Morgan Stanley earnings topped Wall Street estimates and produced numbers that were better on all fronts. The shares surged over 12% Wednesday as the bank produced strong guidance for the fourth quarter as well. However, the stock failed to hold on to the momentum and closed with a final gain of 6%.
The reporting period is off to a strong start; nearly 50 companies in the S&P 500 have reported their earnings, posting numbers that are better than expectations.
Moving away, the focus is back to the US elections, where the race for the next president is close, although some polls indicate that Trump is leading the race.
Market players still maintain their base case scenario as Kamala winning the next race, and anything beyond this would be a surprise.
In terms of economic health, Thursday will see the US retail sales data, which for many is the most naked form of US consumer health. The retail sales m/m number is expected to produce a better reading as the forecast is for 0.3% against the previous reading of 0.1%.
The ECB Event
The most important event for currency traders is the European Central Bank’s meeting, during which they will announce further monetary policy decisions.
The Eurozone bank started the rate cut cycle a few months ago as inflation started to move much closer to the bank’s target. The current interest rate offered by the ECB is the lowest among other major central banks, such as the Fed, the BoE, and the RBA. The rate stands at 3.65%, and expectations are that it will be cut to 3.40%.
As long as the bank cuts the rate by the same amount as is expected, we don’t think there will be much fireworks in the market. However, if the bank takes the knife much deeper, we could expect a very different outcome in the market.
The EURUSD will be a particularly interesting one to watch, because the currency pair is likely to experience higher volatility. It is already under immense selling pressure, and it seems like the bears are still very much in control of the price action.
The green line on the chart below represents the first immediate support zone, while the horizontal line is the resistance zone.
EUR/USD Chart by ExnessAussie Employment Data
In terms of the economic docket, we saw Australia’s employment change data and the unemployment rate. Both numbers produced numbers which were better than expected.
The employment change produced a reading of 64,100 while the unemployment rate fell to 4.1%. All of this produced one message for the RBA, that the time has come to cut rates more aggressively before it is too late.
As for the Pound Sterling, after a massive drop in inflation, the currency is still very much struggling to recover from its losses and its seems like that the trend is still very much skewed to the downside as traders expect more weakness.
Stock Market Performance
The benchmark US tech index, Nasdaq 100, fell 1.01% on Wednesday and finished the day at 18,315. The index is only 2% below its all-time high.
The other two major stock indices, the S&P 500, also declined 0.76%, closing at 5,815. As for the Dow Jones Industrial Average (DJIA), it also closed lower at 42,724 with a loss of 324 points.
Naeem Aslam is Chief Investment Officer at Zaye Capital Markets.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Zaye Capital Markets.
