Markets mixed after second presidential debate

October 10, 2016

Stock markets concluded last week depressed as the chaotic mixture of Brexit anxieties, depressed oil prices, and uncertainty ahead of the US presidential election weighed on sentiment. Asian equities were mixed on Monday following the second US presidential debate which markets thought concluded with no clear winner. In Europe, although sentiment remains somewhat bearish, Sterling’s weakness amid the hard Brexit fears has propelled the FTSE100 +0.63% higher as of writing. Wall Street stumbled lower on Friday following the soft U.S employment report which was still accepted as strong enough for the Federal Reserve to raise US interest rates in 2016. Global stocks could be exposed to losses this week if the renewed Brexit uncertainties and faltering oil prices encourage investors to scatter away from riskier assets.

Hard Brexit fears pressure Sterling

Friday’s market shaking Sterling flash crash still has a firm grip on the GBPUSD with bears enforcing downside pressures below 1.2500 as of writing. The sharp decline last week made it increasingly clear that Sterling was already under immense pressure from persistent Brexit anxieties with talks of a hard Brexit haunting investor attraction towards the currency further. While there have been numerous discussions over the 6% flash crash on the GBPUSD being caused by algorithms reacting on hard Brexit comments from French President Francois Hollande, the ongoing uncertainty over the UK’s future after the article 50 is invoked could have played a critical part in the selloff. Although the depreciation in the pound may be warmly welcomed by exporters, it may add to importing costs of raw materials consequently trickling into higher consumer prices on goods imported. Pounds current weakness has thoroughly discounted expectations of a BoE rate cut in November with further weakness expected as Brexit jitters become a dominant theme.

Sterling/Dollar is heavily depressed on the daily timeframe and could be destined to trade lower if expectations heighten over the Federal Reserve raising US rates in December. From a technical standpoint, prices are trading below the daily 20 SMA while the MACD has crossed to the downside. Previous support around 1.2500 could transform into a dynamic resistance which encourages a further decline lower towards 1.2200.

Dollar weakens post NFP

Dollar displayed weakness last week Friday following the soft US labour report which diluted expectations over Federal Reserve raising US interest rates in December. September’s headline NFP figure printed below estimates at 156k while unemployment edged higher at 5% slightly renewing concerns over the resilience of the US labour force in this period of uncertainty. Although average earnings m/m edged higher at 0.2%, the overall report remained mixed and this could pressure the Dollar this week. With September’s NFP neither good nor bad, it seems likely that the Federal Reserve accesses further domestic economic data to be provided a justifiable reason to raise US interest rates in December.

From a technical standpoint, the Dollar Index remains bullish on the daily timeframe as there have been consistently higher highs and higher lows. Prices are trading above the daily 20 SMA while the MACD has crossed to the upside. Bulls remain in control as long as the 96.00 support is defended.

Commodity spotlight – Gold

Gold stumbled to fresh four month lows at $1241.30 during trading last week as the string of solid U.S economic data reinforced expectations over the Federal Reserve raising US interest rates in December. Although Friday’s mixed NFP caused the yellow metal to experience a slight rebound, this technical bounce could offer an opportunity for bears to install heavy rounds of selling. In this period of renewed US rate hike hopes, sentiment remains bearish towards the zero-yielding metal with further declines expected as the Dollar strengthens. From a technical standpoint, previous support around $1270 could transform into a dynamic resistance which encourages a further decline towards $1240.

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