Trading with point and figure

DAX into the open
turning down a tad

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Buongiorno signor D,

Re: Cable I have upward momentum and expecting 1.3170s to be breached with 1.3260s as target.

That's ofcourse if there are no Brexit hiccups.


FTSE's storming ahead too along with US indeces.


On the DOW I have 26500 as a target.


I'm trying to think of downside moves but feelings not there. So onwards and forwards unless some shock horror news hits us. No major releases today but the FOMC statement later this evening.


(y)
 
Digesting China and German Trade, Japan Orders, UK RICS House Prices
and REC Employment indices; focus on FOMC meeting, US Claims, EC
forecast update, rate decisions in Malaysia & Peru, more earnings
and bond auctions in France and Spain

- China Trade: strength in both imports and exports encouraging, few signs
of drag from trade tensions, despite obvious sings of distortions above
all in agri; strength in demand for crude by refiners an encouraging
signal on growth

- Japan Orders: worst ever one month fall suggests risks on CapEx outlook,
BUT confluence of inevitable correction from prior strength and impact
of natural disasters advises caution in over-interpretation

- FOMC: at most likely to tweak wording, but to remain upbeat on economy,
and signal further gradual rate hikes; post elections drop in volatility
and tightening of credit spreads suggests Fed more likely to remain
concerned about still loose financial conditions

- Charts: China/US Trade: GS US Financial Conditions, VIX, US HY Credit
average spread; JPM EMBI Average spread; S&P500 Share buyback and
Dividend volumes

..........................................................................

********************
** EVENTS PREVIEW **
********************

With the specific US mid-term elections event risk having passed, financial markets can revert to focussing on data and central banks, even if political and trade tensions (Brexit, Italy, China, etc) will remain as the overarching themes, and there will be some specific interest in what Trump and the Republicans might try and railroad in legislative terms, before the newly elected Congress takes over in January. But with the corporate earnings season drawing to a close and event risk out the way, a close eye needs to be kept on corporate buyback volumes (aka tax cut related "corporate QE"), which should offer support for equities. We also need to watch corporate bond issuance, particularly as the passing of the perceived mid-term election event risk unleashing a deluge of issuance yesterday, totalling $23.4 Bln, which would be a good weekly volume total. Be that as it may, today's busier run of major data is heavily front loaded via way of the overnight China and German Trade, Japan Orders and UK RICS House Price survey, with only US weekly jobless claims ahead. While not heavily anticipated, the FOMC meeting will be a key point of interest, with the ECB Bulletin, a speech from ECB's Coeure, the Banca d'Italia monthly report on bank balance sheet aggregates and an expected no change decisions from Malaysia's BNM and Peru's BCP, along with updated EC economic forecasts make for a busy events schedule, with another raft of corporate earnings and multi-maturity auctions in France and Spain also due. In terms of the overnight items beyond the China Trade data, the worst ever fall in Japan's Machinery Orders looks to be very unfortunate confluence of an expected reactive correction to the prior two month's enormous strength, and the impact of the series of naural disasters that hit the Japanese economy very hard during the month, even if the fact that overseas orders were particularly hard (-12.5% m/m) could be construed as trade tensions gaining traction. The slide in the UK RICS House Price Balance to a 6-year low, with sales flat or negative across all regions is to a large extent rather unsurprising and has been "work in progress" for a number of years since former chancellor Osborne started hiking property taxes (stamp duty and levies on foreigners), with rapidly deteriorating affordability for domestic buyers, and the uncertainty related to Brexit combining to deliver a very poor backdrop for UK housing.

** China - October Trade Balance **
- Once again Chinese Trade data continues to defy the gloomy economy predictions related to the trade stand-off with the USA, and domestic difficulties related to over-capacity in some sectors, the sharp accumulation of credit and concerns about a credit meltdown, as well as environmental curbs. Encouragingly in terms of Q4 GDP, both exports and imports easily beat forecasts at 15.6% and 21.4% y/y respectively. in the commodity space, the strength of demand for crude oil from private ('teapot') refiners underlines that demand for overall demand for gasoline and diesel remains strong, and per se points to solid prospects for the transport sector. the drop in Iron Ore imports looks to be a combination of some problems with shipments from major suppliers, as well as a dip in demand due to the weaker CNY, though very high capacity utilization rates in the sector suggest output will likely remain solid, even if winter output curbs will weigh in coming months. As for agricultural imports, the revisions to projections for corn crops / consumption and soymeal demand look to be the more important item to digest.

** U.S.A. - FOMC meeting **
- The Fed is seen on hold at this non-press conference meeting, and its accompanying statement will likely offer a strong hint that rates will rise again in December, though there are many market participants wondering if the recent tightening of financial conditions may, if sustained, prompt the Fed to pause in the not too distant future. It will likely remain upbeat on the economy and the labour market, and sanguine on the inflation outlook; the question is then whether it offers comment on trade tensions and international developments, which the FOMC statements have largely eschewed. In terms of financial conditions indices, these remain loose by any longer term historical standards, even if short-term the combination of more volatile equity markets, the uptick in Treasury yields, wider money market spreads, and modestly wider credit spreads has tightened conditions. However a closer look at some of the components suggests the upward pressure is easing, see charts of VIX, US HY and EMBI spreads, even if anecdotal evidence from the consumer sector suggests modestly tighter credit standards are being imposed by some banks. But with the Powell Fed gradually stepping away from the 'hand holding' and 'spoon feeding' of the post-GFC era meeting statements, it will be the minutes of this meeting in 3 weeks which may be rather more enlightening, than what will likely be little more than 'tweaks' to the statement (Sept 2018: https://www.federalreserve.gov/newsevents/pressreleases/monetary20180926a.htm ).

from Marc Ostwald
 
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