Too Hot To Fly
The US futures and European markets are trading lower as investors are picking up the momentum from Wall Street. The S&P500 index failed to spend another day above the 3000 mark yesterday. The index dropped below this level and closed with a loss of 0.36%. The level is just too hot for now and there isn’t enough momentum to keep the price above this.
The retracement in the index happened after some conflicting signals from the earnings report released yesterday. For instance, we had two stocks—the most favorite among investors when they want to play defensive—reporting different pictures. McDonald’s numbers were dismal while Protector & Gamble were strong. This left the picture unclear.
Nonetheless, investors are going to look at two stock earnings closely. Firstly, it is Caterpillar’s earning—investors do consider this report as a bellwether for the entire industry. It is expected to report a number of 2.87. The implications of a trade war could be seen in this number. On the tech front, we have Microsoft and it is expected to report an earning per share of 1.244. For the last eight quarters, Microsoft has surprised the market with its numbers.
The economic docket is pretty much empty, hence most of the momentum in the market is going to take its lead from earnings.
What Can Push The Markets Higher?
We believe only some positive development on the trade war front along with strong earnings could push the index above the all-time high. It is important for investors to pay close attention to the volatility index because it spent most of its trading session in positive territory yesterday and some of it was when the S&P500 index was positive as well. So, this really tells us that investors aren’t convinced about the upward moves in the index.
After Heightened Volatility In Sterling, Consolidation Ahead
Yesterday was another dizzying evening created by British lawmakers. No-deal Brexit, something which could happen in eight days, has been avoided for now. The betting market shows the odds of no-deal Brexit dropped below 6%. For market watchers, it was an opportunity to play the volatility which did because we experienced some significant whipsaws in Sterling. In the end, Boris Johnson wasn’t able to celebrate and we are looking at the possibility of a general election. The ball is in the EU court who needs to mull over the UK’s request for an extension and this is going to kick the can down the road. In simple terms, the Brexit deadline ig going to be pushed from October 31 to January 31.
The event shook the grounds for Sterling and its reign as the best performing currency among the G10 is under threat—it is still in the lead, Aussie dollar is the up 1.79% month-to-date.
Cable’s one-month risk reversal has changed its direction after some volatile session. The chart below shows that investors are betting for sterling to rise once again. The main reason behind this is that the threat of no-Brexit is off the table for now.
