Earnings season kicks off strong, Oil markets on edge

China didn’t pull out the fiscal bazooka on Saturday, but said that there will be a significant bond issuance to help reverse the deepening property crisis and local governments. Israel didn’t attack Iran but some reports hinted that the Israeli army could be narrowing their targets on military and energy infrastructure. As such, crude oil kicked off the week downbeat. The barrel of US crude is trading below the $75pb mark in the early ours of Monday trading, and Brent oil consolidates near $78pb. The short-term risks remain alive; there could be a sudden spike in oil prices in case the Israeli attack on Iranian energy facilities materializes. But the careful steps from the Chinese government regarding their stimulus plans will likely keep the medium to long run investors on hold.

Xi doesn’t like market euphoria and investors don’t like the fact that the ample monetary stimulus may not be channelled toward the right places in the absence of an efficient and comprehensive fiscal package. But both agree that China needs stimulus to overcome the deepening property crisis and fight deflation. The figures released during the weekend showed that consumer price inflation in China was flat in September, while the decline in producer prices accelerated to 2.8% y-o-y. The stock markets gave a mild reaction to the avalanche of news and data. The CSI 300 is up by 1.50% at the time of writing. The index sank last Friday into the bearish consolidation zone on the latest rally triggered by the news of major monetary stimulus. We will probably see the volatility and the latest gains fade. The Hang Seng index, on the other hand, is down by around 0.40% today but holds ground near a minor 23.6% Fibonacci retracement. The index is still in a bullish trend but gains here will probably slow down as well. China related commodities, like copper and iron ore futures are mixed this morning, swinging between hope that China hasn’t got an option but to do whatever it takes to reverse the fortunes, the AUDUSUD is consolidating near the 50-DMA and the major 38.2% Fibonacci retracement, near the 0.6720 level, that should distinguish between the actual bullish trend and a medium-term bearish reversal.

USD extends gains

Friday’s US producer price data came in mixed. The monthly figures were lower than the expectations but the yearly figures were stronger than expected, and the core PPI advanced to 2.8%. The figures didn’t change the November expectations regarding what the Federal Reserve (Fed) would do... the expectation is that the Fed will likely cut its rates by 25bp with a nearly 87% chance assessed to it. But it becomes clearer by the day that the Fed won’t attempt another acrobatic move on its rates in the coming months. The US dollar consolidates and should further extend gains as the other major central banks are set to deliver dovish decisions.

In this context, the European Central Bank (ECB) is expected to announced another 25bp cut on Thursday – as the September CPI should confirm that headline  inflation in the Eurozone fell below the bank’s 2% policy target a few hours before the decision. The EURUSD pulled out the major 38.2% Fibonacci support last week and extends losses within the medium term bearish consolidation zone. The next bearish target stands near 1.0875, the 200-DMA, that will either give support to the pair on the back of a cautious cut (due to concerns around sticky core inflation), or clear that support on the back of a dovish cut. Lagarde will tell.

Across the Channel, the British CPI due Wednesday is expected to confirm that the British inflation has also come below the Bank of England’s (BoE) 2% target, but core inflation is still near 3.5%. The BoE Governor Bailey had recently told investors that the bank is about to get ‘more aggressive’ on its rate policy – a comment that had triggered an aggressive selloff in pound sterling. This week’s inflation numbers could give more substance to Bailey’s comments and send Cable below the 1.30 mark, but services inflation will say the last word.

Earnings season kicks off on a positive note

The S&P500 finished last week on a fresh record high as the first big bank earnings came in better than expected. JPM jumped more than 4% and Wells Fargo rallied more than 5% after their Q3 results beat estimates. More bank earnings are due this week along with Netflix, TSM and ASML results.

Elsewhere, Tesla fell nearly 9% on Friday after the company failed to deliver enough details and an encouraging timeline for its robotaxi at last Thursday’s reveal. It’s clear that their robotaxi is not ready to hit the streets yet and that Tesla is not yet bringing any revolution to the world of robotaxis. And provided that the dream of robotaxis was what was keeping investors in appetite since April – as the EV sales are clearly declining across the globe – there is little reason to keep the positive trend going in Tesla. The shares will probably give back to robotaxi gains until further notice. The crumbling robotaxi hopes for Tesla sent Uber and Lyft around 10% higher on Friday.