LCG: Mixed sentiment. Pound down, FTSE up. Barclays reports after RBS’ miss

October 25, 2019

The US dollar gained against all G10 majors after a stronger-than-expected PMI read hinted at improved manufacturing activity in the US in October.

US stocks traded mixed. The Dow Jones closed Thursday’s session 0.11% down, the S&P500 advanced by a timid 0.19%, while Nasdaq gained 0.81% as technology stocks outperformed.

The US treasury yields remained unchanged.

Tesla jumped more than $50 to $304 a share at the open on surprising earnings announcement a day earlier.

But the positive sentiment somewhat faded with disappointing Amazon results, which have sent the company’s share price 9% lower in the after-market trading. Amazon announced lower than expected profits due to higher spending for one-day prime deliveries and its cloud computing services, and curbed its fourth quarter expectations.

This far, 192 companies out of the S&P’s 500 announced earnings. The earnings surprised by a positive 4.45% overall. All sectors performed better-than-anticipated during the third quarter despite the trade worries and a strong US dollar. Energy companies were the only exception. Though their sales surprised 5% on the upside, oil companies’ earnings fell 4.28% short of market expectations due to low energy prices amid slowing economic activity and waning global demand.

On the US-China trade front, Mike Pence’s criticism of China over the human rights in Hong Kong protests tempered the optimism regarding the possibility of a partial trade deal next month and justified a renewed flight to gold. The yellow metal surged to $1505 an ounce and settled near the $1500 mark in Asia.

Investors remain hopeful that despite political controversies, the two countries could find at least a partial agreement at next month’s APEC meeting in Chile.

Arrivederci

The European Central Bank (ECB) kept its monetary policy unchanged at Thursday’s meeting. Mario Draghi painted a gloomy economic picture at his last press conference before handing over the reins to Christine Lagarde.

The EURUSD tested the 1.1150/1.1160 offers twice, then tanked to 1.1100-support on a further decline in German PMI figures and a broadly stronger US dollar. In the absence of major economic release in Europe today, the price action in euro-dollar will likely remain dollar-driven.

Johnson has likely secured a win, if election

The pound shortly dived below the 1.28 handle against the US dollar on heightened political uncertainties amid Johnson called for a snap election on December 12. He needs the support of at least two thirds of MPs to go ahead with an early election. Labour’s Jeremy Corbyn couldn’t be quicker in rejecting his proposal, faced with an almost certain defeat.

By agreeing on a Brexit deal with the EU and passing his deal through Parliament, Johnson has certainly secured an easy win for the next general election. But to do so, he needs that three-month extension in the Brexit deadline. Europeans will decide today whether to grant the UK a fresh extension, and if yes, by how much.

The pound will likely further suffer from an early election dispute in Britain. A successful attempt below the 1.28-support against the US dollar should pave the way toward the 1.27 mark, the major 38.2% Fibonacci retracement which should distinguish between a consolidation of recent gains and a mid-term bearish trend reversal.

FTSE up, eyes on bank results

FTSE futures hint at flat start on Friday, but a softer pound could serve as a springboard for a further advance toward the 7400p mark in the British blue-chip index.

The FTSE stocks gained more than 2.5% this week. Moving forward, the focus turns to UK earnings.

Diving into the individual company news, Barclays will reveal its third-quarter results today. The skepticism prevails after the RBS missed its earnings estimate by a decent 61.8% at yesterday’s release. Because the expectations are low, a better-than-expected print could do the trick for Barclays, which may have benefited from higher trading revenues during the third quarter likewise its US counterparts.

Opening calls

FTSE to open 3 points lower at 7325

DAX to open 20 points lower at 12852