Euro strength at the mercy of the ECB

Euro strength at the mercy of the ECB
by Ipek Ozkardeskaya

The US dollar is better bid as US jobless claims fell by 7,000 to 42 year lows; the core inflation improved to 1.9%y/y from 1.8%y/y rather surprisingly in September given the subdued retail sales reported over the same month.

In the Eurozone, the headline inflation accelerated by 0.2% in month of September in line with expectations, the core inflation stabilised at about 0.9%y/y. The ECB’s efforts seem to be paying back as the fall in oil and commodity prices appease.

Fed member Dudley’s hawkish comments favouring a December rate hike sent the US 10-year yields back over 2%. Despite the fact that liquidity conditions will likely be less than favourable investors should still keep an eye out for the possibility of a December rate hike. The probability extracted from US sovereigns is still a meagre 30%. The banking sector printed mixed Q3 results in the US. For the major US banks that already have announced results, the third quarter has been a clear miss. Encouraging news came from Citi, while Goldman missed its EPS estimate by 8%. Nevertheless financials outperformed in the US with JPM (+3.17%), GS (+3.04%) and Citi (+4.44%). The prospects of higher rates and stabilisation in the commodity and FX prices carry hope. Nevertheless, the cheap energy prices weigh on small to medium sized energy companies balance sheets. And banks could only share the pain by attributing flexible conditions on their loans.

It seems like the EURUSD is going to end the week on a failed attempt to break above the 1.15 mark. The trend in EURUSD has been positive but timid since it dipped at 1.0809 in July. Buyers enter the market cautiously as the appreciation in the euro is ultimately at the mercy of the ECB.

In his speech yesterday, Governor of Bank of Austria Nowotny mentioned that the ECB is clearly missing its inflation target. Interestingly, the hawkish ECB members soften the tone.

The most hawkish Bundesbank could also join Mr. Draghi in his efforts to keep the euro at competitive levels after German exports tumbled by a significant 5.2% in month of August and the scandal around VW could further damage the trade terms.

The Euribor interest rate futures price in deeper negative rates in the Eurozone before next week’s ECB meeting. Still, the consensus is status quo in rates and a possibility of expansion in the Quantitative Easing program. The Eurozone sovereigns are in demand today. The German 10-year yields ease back to 0.545% and the spread between the core and the periphery remains steady.

The DAX consolidate gains circa 10000 mark, utilities and financials lead gains. Defensive stocks are in the sidelines on better appetite in stocks.

European markets are tracking US and Asian gains
by Brenda Kelly

European markets are tracking US and Asian gains this morning. China and Japan bourses have been led higher by the tech and financial sectors but have also been supported by the omnipresent but oscillating speculation of additional stimulus from the PBOC and the BOJ. This has been further underpinned by Kuroda on the wires this morning where he stated that the BOJ would continue to ease until the 2% inflation target was achieved. A boost in the price of oil is possibly temporary given that it’s based on the expectations that US crude production will decrease, has pushed oil stocks higher this morning too. The issue of OPEC potentially taking up this slack remains key.

With Chinese GDP due for release on Monday, the jury is still out on whether the country can achieve an annualised 7% annual growth. Bullish calls from HSBC this morning in respect of the number are most certainly adding an extra element to the debate.

BP + 1.5%, Shell + 1.47%

GLENCORE (+3.48%) The company now seeks credit rating upgrade with more debt cuts. This has been construed as a positive step and Blackrock has apparently added to their long position.

RIO Tinto (-0.54%) Q3 production in line with expectations. solid execution in iron ore, coal & aluminum. The main fly in the ointment was the decline in copper production. Mined copper fell 24% from the same period last year but remains on track to meet full year guidance of around 510 thousand tonnes.

DIAGEO (-0.35%) Speculation that the drinks giant could sell beer division to HEIA for £7bn

ASTRAZENECA (-0.91%) FDA says more data required to support application on 2 drugs.

IMAGINATION TECH (+1.9%) higher on bid speculation in The FT. AB FOODS (-1.15%) cut to hold from buy at SocGen with a price target at 3300p. Average broker 12 month PT is 3239p.

ARM HOLDINGS (-0.71%) Bid speculation in The FT, Telegraph, Times &Daily Mail is not exactly igniting any interest in the stock in early trade.