US markets to remain closed as Bank of Japan eases again
By Michael Hewson (Senior Market Analyst at CMC Markets UK)
US markets look as if they will once again be closed today, while consumer confidence numbers for October have been delayed until 1st November as a result of Hurricane Sandy. This closure is likely to once again translate into lower volumes than usual in Europe today.
Overnight the Bank of Japan once again continued its piecemeal approach to easing monetary policy, this time by adding 11trn yen to its latest round of stimulus measures. Predictably the market reacted with disappointment and the yen once again started to push higher. The limited scale of the action is likely to prompt speculation as to what it will take for the Bank of Japan to unleash its next move given that the economic data of the past couple of days has shown evidence of continued deterioration and the rising yen will once again hamper attempts to boost the economy. It remains likely that more stimulus measures will be unveiled further down the line as exporters berate the BOJ for its timid approach.
Back in Europe, anyone looking for clues as to the timing of any bailout request from Spain at yesterday?s press conference between Italian PM Monti and Spanish PM Rajoy in Madrid would have been disappointed as Mr Rajoy once again held back from making a request, despite economic data continuing to deteriorate.
Yesterdays? Spanish retail sales numbers were truly shocking, a 10.9% slide year on year for September the figures clobbered by the result of the imposition of a hike in VAT rates as a part of a recent austerity budget.
It?s not hard to understand why PM Rajoy continues to hold out; given the fall in bond yields since the announcement of the ECB?s OMT bond program which has eased the pressure on Spain?s borrowing costs. The Spanish leader said he would do it when it is in Spain?s best interests, which probably means a delay until after the elections in Catalunya in November.
Rajoy can afford to wait given that Spain is over 90% funded for 2012, and could well fund the remainder of the outstanding balance at fairly low short term rates, even if economic data continues to deteriorate further, which seems likely.
Spain Q3 GDP is likely to be confirmed this morning at -0.4%, while the year on year number is set to slide back further to -1.7%.
Concerns about a Greece exit from the euro are once again rising after Germany once again ruled out any form of debt relief for the beleaguered nation, despite a rising realisation that it remains pretty much the only option left to policymakers.
If markets are hoping for signs of hope in the German economy then recent data have certainly disappointed and today?s release of October unemployment data is set to show a rise of 10k in October, while the unemployment rate is set to increase to 6.9%, while economic confidence data out of Europe is also set to continue to remain weak,
The cost of Italy?s borrowing also rose yesterday, though not for the same reasons as Spain?s, as a result of weekend comments by former PM Berlusconi, that his party would withdraw support from PM Monti, potentially forcing an early election.
Given that Italy is looking to sell 10 year government debt today this uncomfortable reminder of the previous incumbent pushed 10 year yields back above 5% for today?s ?2bn-?3bn auction.
The last 10 year Italian auction saw yields of 5.24% and a bid to cover of 1.3. the hope is that yields will come in lower and demand higher.
EURUSD ? the lack of reaction to the break of trend line support from the 1.2045 lows now puts the focus of attention on the support at the 200 day MA at 1.2835. We?ve also seen the 50 day MA cross above the 200 day MA which is traditionally a bullish sign. It needs a move below 1.2830 to indicate further weakness towards 1.2650.
The risk remains for a rebound back towards 1.3030.
On the upside the main resistance remains at trend line resistance 1.3105, from the 1.4940 highs.
Only a move above 1.3240, targets 1.3495, the 50% retracement of the entire down move from 1.4940 to 1.2045.
GBPUSD ? yesterday?s failure to overcome the 1.6100 level prompted a sharp move lower towards 1.6000 where the pound found some support at the 55 day MA.
The 1.6140/50 area remains the key resistance and barrier to a move towards 1.6285 trend line resistance from the 2011 highs at 1.6750 as well as 1.6310 the highs this year.
Further weakness should find support at 1.5910, last weeks low, and 38.2% retracement of the 1.5270/1.6310 up move.
EURGBP ? the 55 day MA now at 0.8000 continues to support the single currency as we look to retest the 0.8070 area. A break here would retarget the 200 day MA at 0.8110.
USDJPY ? the 200 day MA appears to be offering support in the interim despite Friday?s bearish engulfing daily candle. The failure last week to close above 79.80 could see a move back towards 79.20 as well as further losses towards 78.50.
The US dollar needs to hold above the 80.00 level and take out the June highs at 80.60. We also need to close above 79.80 on the week to open up a move to 81.00 which is the top of the weekly cloud.
Equity market calls
FTSE100 is expected to open 10 points lower at 5,785
DAX is expected to open 9 points lower at 7,194
CAC40 is expected to open 6 points lower at 3,403