Fundamentals:

The German IFO for October will be released today, giving traders an idea of the level of confidence in German businesses.  This number could surprise to the upside after we saw the services and manufacturing PMI data come in better than expected.

Yesterday, we saw the US Philadelphia Fed business outlook manage to barely turn positive, with a reading of 1, but many analysts have suggested that the specific details of the report are not so encouraging.  Prices paid came in at 31.5 from 9.8 previously, leading to the positive reading.  But prices received showed another contraction at -9.0 from -13.9 previously, suggesting that margin expansion is coming to an end.  Inventories also dropped to 18.6 from -16.7 previously, which will inevitably be a drag on growth prospects.  New orders also declined to -5.0 from -8.1 previously, continuing a 5-month negative trend.  U.S. leading indicators increased 0.3% on a monthly basis for the month of September, up from a 0.1% increase in August.

The earnings reports from Nokia and Caterpillar were positive surprises for the market.  This is good news for the global economy and Caterpillar went so far as to raise their yearly earnings forecast on the expectation that interest rates will remain low and emerging markets will create demand for their products.

United Parcel Service (UPS) also released their earnings yesterday and followed the others in similar fashion, surpassing market expectations and raising their yearly earnings forecast.  UPS reported that the main driver behind the positive numbers came from international deliveries (mostly Europe and Asia), which rose 13%.  This lends strength to the argument that emerging markets (particularly India, Brazil and emerging Asia), will continue to me the main source of strength in global GDP whereas Europe and the U.S. will likely see recovery periods that progress much more slowly.

Technicals:

Commodities:

Oil had a quiet session overnight compared to the recent volatility that we have been seeing.  Daily RSI is at mid levels.  The overall bias is up following the break of resistance at $82.90.  Market indecision is typically followed by strong moves, so once $84.40 breaks, we expect the $87 level to be pressured forcefully.

Currencies:

The GBP/USD is showing weakness and is closing in on our buy zone in the 1.56 area.  Stops for this trade may need to be wider than usual given the fact that there are likely to be stoplosses of good size below support at 1.5650.  However, these pullbacks are seen merely as corrective.  The critical break of 1.60 can be seen on the daily charts, and this is the reason for the longer-term bullish bias.  Key support on the dailies comes with the confluence of Fibonacci and historical levels between 1.5280 and 1.53.

Stocks:

The S & P 500 did spike above the previous resistance of 1180, as expected but follow through there has been tepid at best.  The slight pullback to 1167 looks to be more of a shake-out of weak longs than anything else and the bias is still clearly to the upside.  The small drop to 1167 is still showing us a higher low and the 4-hour uptrend channel remains intact.   Key support is still at 1155 (if this area breaks, the short term bias shifts).  Resistance above is not seen until at least 1200.

Fundamentals:

Markets will likely focus on the Eurozone today as the purchasing managers’ index (PMI) data for both manufacturing and services is released. Markets are looking for small decreases for October but these releases are expected to remain above the expansionary 50 level.  Manufacturing numbers could disappoint, given the negative ZEW data released recently.

Leading indicators for both Canada and the US will also be released.  For the US, analysts will be looking for the number minus “market components,” which include things like stock market and treasury spreads. This number has been weak during the previous 5 months.  The Philadelphia Fed business outlook index (OCT) is also set to be released, with the consensus looking for an increase after two negative monthly readings.

Data from China overnight showed that the impetus for raising interest rates was tied to raises in inflation.  Consumer prices rose 3.6% yearly for September after a 3.5% rise previously.  Producer prices also rose, growing 4.3%. Third quarter GDP is seen down, to 9.6% yearly after a 10.3% rise in the second quarter. Retail sales saw modest gains, but production and fixed assets decreased year-over-year.

In equities, the report from Wells Fargo showed that credit portfolio improvement is continuing for US banks.  Boeing saw gains from strong orders, helping erase some of the production delays that have been seen recently.  Based on this, Boeing raised its earnings per share forecast to the high end of its projected range, and this represents a positive for the global economy as a whole.

United Technologies also beat market expectations with their earnings report, the number was aided by sales of jet engines.  Lastly, Ebay surprise to the upside, lifting their earnings projections for the fourth quarter. All of this information is very positive for equity markets, helping sentiment after the surprise rate high in China.

European earnings will be important today, with reports from Nokia.  We will also see releases from Caterpillar, Amazon, Eli Lilly, UPS and AT&T out of the US.

Technicals:

Commodities:

Oil prices are now likely to be forming an expanded range, with the upper end coming in at $84.40 and the bottom near $79.  Prices are currently in the middle of that range, and this correlates with the 4-hour RSI at 53.  Traders can either play this range with tight stops of wait for breaks.   $83.30 is the first resistance.

Currencies:

The GBP/USD has convincingly broken is uptrend channel on the 4-hour charts and found resistance of 1.5830.  The hourly RSI is nearly in overbought territory at this stage, so another move lower cannot be ruled out.  Lower hourly highs also support this view.  Buy pullbacks to the 61.8% Fibonacci retracement at 1.56.  Resistance above is seen at 1.5640 and 1.61.

Stocks:

The S & P 500 has been remarkably faithful the 4-hour uptrend channel that has been mentioned previously.  Markets are making a third attempt at the 1180 level at the time of writing, and it only appears to be a matter of time before that level breaks.  For resistance, we must go back to the daily charts at this point.  The next historical level above comes in at 1216 but there is likely to be some problems with the psychologically important 1200 level.  Support is now seen at 1155.

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Fundamentals:

Today, we will see the minutes from the last Bank of England meeting, so traders will gain an understanding of the Bank’s current stance on quantitative easing.  The Bank decided against increasing the asset purchase target amount during its last meeting, but since signs of economic recovery are limited, the BOE may be forced to inject another round of stimulus.  Some analysts have suggested that the BOE will add to their QE strategies with purchases of somewhere between £100 billion to £300 billion.

Yesterday, the People’s Bank of China surprised markets and raised interest rates for the first time since the credit crisis.  Interest rates were increased by 25bps to 5.56% and 2.50%, for the lending and deposit rate, respectively.  Risk appetite dropped on the news, pushing safe-haven assets higher.

The ZEW surveys from Germany and the Eurozone were disappointing releases, coming in at -7.2. This figure does not bode well for growth for the remainder of this year but the present situation index did rise to 72.6, which does lend some positive support for each region.  German growth has been fueled by net exports, but recent gains in the Euro will inevitably have an effect on this at some stage.

Bank of America released a positive earnings report yesterday, contributing to the already strong earnings season.  Bank of America followed J.P. Morgan’s lead by using loan loss provisions to increase earnings.  Statements were made suggesting that the major credit deterioration has finished and, if this is true, there will be positives ahead for the US real estate market.   This level of optimism is surprising, and lends to the argument that the banks are relatively certain that economic stimulus will be coming from the Federal Reserve.

Numbers from Goldman Sachs also positively surprised markets, but consensus expectations have been revised lower recently.  So, a similar print would not have been as impressive if it had been released 6 weeks ago.  Today, markets will focus on earnings releases from Abbott Laboratories, United Technologies, Wells Fargo & Co. and Boeing.

Technicals:

Commodities:

Oil prices took a tumble yesterday and broke range support at $82.30.  The decline stopped at the 50% Fibonacci retracement of the move from $73.60, which corresponds with a previous high near $79.  Short term momentum looks to have shifted, so buy pullbacks to 61.8% Fibonacci support at $77.70.  Resistance comes in at $83.25.

Currencies:

Yesterday we wrote that the USD/JPY looks like it could be forming a base, and this was confirmed later by the break above resistance at 81.70.  The performance after this break has been lackluster but the hourly indicator is turning up from oversold levels, so the bias is up for at least the short term.  Next resistance is at 82.35.

Stocks:

The S & P 500 saw a pullback yesterday but found support ahead of the key 1150 support level at the 100 period moving average on the 4-hour charts.  The uptrend channel on that chart is still intact as long as 1150 holds.  The overall bias here is still positive, we look for a test of 1200 in the medium term.

Fundamentals:

US equity markets rose after a very strong earnings report from Apple.  The company far surpassed the consensus estimates, which were expected at $18.08 billion, and printing revenues of $20.34 billion.  Earnings per share came in at $4.64 against the market estimate of $4.10.  Apple is clearly managing to bring in customers even with the dire economic outlook in the US, and the company reported that they expect sales growth to remain steady next quarter.  Today, we will see if this strong earnings season can continue with reports from Johnson & Johnson, Bank of America and Goldman Sachs.

In macro data, we will see US housing starts and building permits released today, with many analysts calling for a weak report, given the current climate in the real estate market.   The National Association of Homebuilders Market Index rose to 16 in October from 13 the previous month.  Numbers below 50 are indicative of market contractions, so we have a long way to go before that report is likely to start signaling expansion.

Today, we will see speeches made from many central bank members, including the Fed’s Lockhart, who has gone on record recently saying that a “reasonably large” amount of quantitative easing is needed to strengthen the slowing US economy but it should be remembered that Lockhart is not a voting member of the FOMC.

US industrial production dropped0.2% month-on-month in September, consensus was for a rise of 0.2%.  Third quarter industrial production rose 1.5% down from 2.0% in the second quarter.  Manufacturing production also dropped 0.2% in September which will translate to a 1.3% gain for the third quarter, down from the 2.5% increase in the second quarter.

The earnings season moves forward today with earnings reports Johnson & Johnson, Bank of America and Goldman Sachs.  The story for Bank of America is likely to center on their credit portfolio.  J.P. Morgan and Citigroup increased earnings using loan loss provisions, and it is possible that Bank of America will do the same.  The Goldman will also be watched closely to see whether or not their typical showing of strong performances can be repeated but analysts will pay close attention to the sources of company earnings.

Technicals:

Commodities:

Oil has remained incredibly faithful to support and resistance for the past few weeks.  The range between $84.40 and $82.30 is still intact.  Play the range or wait for a breakout in one direction.  Support to the downside comes in at $78.90.  Resistance above is seen at $87.

Currencies:

The USD/JPY looks like it could finally be forming a base, as a tight range has developed between 81.00 and 81.60.  It is unlikely that prices will be contained here for very long, so the inevitable break here will determine the short term bias.  Resistance comes in at 82.30 and 83.00.

Stocks:

The S & P 500 has risen to threaten the triple top resistance at 1180.  A break of this area confirms the upward bias suggested by the 4-hourly uptrend channel.  Hourly RSI is at mid levels, so prices have plenty of room to extend.  Support is still strong at 1164.


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