Evening market comment: Pound rebounds off $1.31; Expectations low as May arrives in Brussels

Pound rebounds off $1.31; Expectations low as May arrives in Brussels

The pound took a tumble after CPI data showed that inflation slowed to its lowest level in 18 months in September. Prices grew 2.4%, down from 2.7% in August and below the 2.6% forecast as the declining price of food offset climbing energy prices. With inflation declining and wages growing the outlook for UK households is improving after months of pressure. The pound dropped, giving back gains from the previous session, as lower inflation means a rate hike from the BoE is less likely.

The pound found support and rebounded off $1.31. However, there are still several market moving events left, which could see the pound test this level again.

Pound traders will now turn their attention towards the EU Leaders Summit. Whilst there is little clarity surround Brexit, what is clear is that no deal has been reached so far. Teresa May will address 27 European Leaders around 6pm local time. The leaders will then decide if there is sufficient momentum to move ahead with the extraordinary summit in November. Given recent headlines and the pounds focus on economic data, market expectations are low.

After spending much of the session in the black thanks to the weaker pound the FTSE joined its European counterparts in the red for the close. Tumbling oil prices and another volatile start to trading on Wall Street pulled the FTSE sharply lower.

US earnings roll on

Netflix has jumped a solid 5.8% in early trade as investors cheer better than forecast earnings and subscriber numbers, putting the firm well and truly back on track after a blip in Q2. IBM was leading the declines off by 7% as earnings beat forecasts but revenues missed. The disappointment in IBM was magnified after the standout earnings from Goldman’s Sachs, Johnson & Johnson and United Health in the previous session.

Yesterday’s strong earnings saw Wall Street post its best daily gains since March, so a pull back today is to be expected. It’s the size of the swings that we are seeing so far in October which is attracting trader’s attention and keeping the markets jittery.

Overall earnings season has gotten off to a strong start. According to FactSet 89.9% of S&P companies that have reported so far have topped estimates.

Fed in focus

The dollar was trading higher ahead as the release of the FOMC minutes moved into the spotlight. Given all that has happened since the meeting, there is a high chance that the minutes are in fact out of date. That said, traders will still scrutinize them closely for any hints as to when the next rate rise will be (December) and what the Fed has instore for 2019.