Trading with point and figure

DAX into the open
24mwew4.gif
 
cable in a big rex 1.2350
was prev supp
1.2320 firts supp
1.2275 bigger supp
rez goes up to 1.2420
then 1.2500/round
 
- Digesting solid China, India Services PMIs, Egypt devaluation, looking
to UK and US Services surveys as UK takes centre stage with Article
50 High Court ruling, MPC rate decision and Q4 Inflation Report; US
Claims, Factory Orders; Corporate earnings and French & Irish bond sales
also on tap

- US election polls and oil price gyrations continue to cast long shadow

- US Non-manufacturing ISM: expected to slip modestly after September
surge, Business Activity Index seen higher, Employment index slipping

- MPC rate decision: rates and QE seen unchanged, Forbes dissent baked in
the cake, any others?

- BOE Q4 Inflation Report: August CPI forecasts clearly in need of revision,
along with GDP; very considerable credibility challenges

- Charts: WTI Oil future and USD/JPY

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

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

Having digested the very unsurprising FOMC statement, in which the only significant change was the omission of inflation remaining low in "the near term", and this was more a recognition of fact than a policy signal, though clearly leaving the door firmly open for a December hike, the UK gets to take centre stage. Todays' relatively busy schedule of data and policy events should offer some distractions from what appears to be a knife-edge US presidential election, which continues to cast a long shadow; another raft of corporate earnings and govt bond auctions in France and Ireland are also on tap. The BoE's rate / policy decision and Inflation report look to be front and central, with a UK High Court ruling challenge to the government’s authority to trigger Article 50 on its own without the agreement of parliament also due. Elsewhere the ECB publishes its Economic Bulletin, which as a rule has little or no impact, though speeches by Villeroy may spawn the odd headline that is of interest. Statistically Services PMIs (excluding continental Europe, which publish tomorrow) are accompanied by Swedish Industrial & Services Output, US weekly jobless claims, Q3 Unit Labour Costs and Factory Orders. The China Caixin Services PMI bump higher echoes a similar upward shift in the official NBS survey, implying Q4 growth should be solid, but doing nothing to allay concerns about the debt overhang, overcapacity in a number of sectors and an overheated property market; by contrast the drop in Saudi's Non-oil PMI to a 7 year low underlines that diversification measures are as yet not showing any signs of gaining traction (in truth, this will likely take a number of years), but comes at unfortunate time as OPEC attempts to cap production are under a large cloud. As such, the oil roller coaster will need to be kept a close eye on, as the jump in EIA and API inventories accompanied by news of another jump in OPEC production, with exceptionalism making an OPEC output cap unlikely or scarcely credible, let alone a cut, and let alone achieving any production freeze agreement with some of the Non-OPEC producers. Inflation outlook assumptions will again come under the microscope, but the the threat of further foreign asset liquidation to meet budgetary needs also comes back into the frame as a risk.

** U.K. - MPC rate decision / Q4 Inflation Report **
- Thankfully the issue surrounding how long Mr Carney will serve as BoE governor has been resolved (for the time being) ahead of today's meeting, though there will still probably questions about that, and indeed hotter potato issue of BoE independence, which certain factions of the Tory party are unlikely to let go of. Be that as it may (Sic! Ed.), the recent bout of GBP weakness and the obvious additional upward pressure on UK inflation in the short to medium-term, along with the stronger than expected Q3 provisional GDP, put paid to any expectations that the BoE might exercise the option to cut Base Rate a further 15 bps (cui bono? Ed.) at this meeting. The first question then is whether any other MPC members, beyond Ms Forbes, register an objection to continuing with the current QE programme. Despite the array of upside surprises on UK data, it does seem likely that the vast majority of MPC members will want to stick with an easing bias, and underline that the risks are stacked to the downside in terms of the outlook. The question then is how the BoE's CPI and GDP forecasts are revised from August's 2017 GDP at 0.8% y/y and 2018 at 1.8%, and CPI at 1.9% in Q3 2017 and just 2.4% in 2018 & 2019 (see: http://www.bankofengland.co.uk/publications/Documents/inflationreport/2016/aug.pdf), with Unemployment forecast to rise to 5.4% in 2017 and 5.6% in 2018. A sharp upward revision to CPI forecasts seems unlikely, though it is certainly being discounted by financial markets, and it has been noticeable that Carney has emphasized that the BoE can only look through a limited overshoot on inflation, and cannot ignore the GBP exchange rate implications; though it also seems fairly clear that the MPC would like to see GBP weakness sustained, but not added to. The big challenge relative to the last upward bursts in inflation in 2008 and 2011 is that the economy is definitely not in recession, and the banking system is not at death's door, per se markets may be far less willing to countenance the MPC "looking through" a rise in inflation on a protracted basis, particularly if the BoE forecasts look to be heavily "under-clubbed".

** U.S.A. - Oct Non-manufacturing ISM, Initial Claims **
- The expected slip in the Non-manufacturing ISM to 56.0 from September's 57.1 looks to be predicated on last month's near vertical surge in the often very volatile Employment Index to 57.2 will see a reactive correction, and may in fact mask an expected rise in the Business Activity Index from 60.3 to a robust 61.0. As ever the usual caveat applies to reading across from the ISM Employment index to Services Payrolls, with the two series often marching in the opposite direction on a month to month basis. Weekly Jobless Claims are seen slipping marginally to 256K from 259K, which would match the average for Q4 to date, and continue to signal a very solid and tight labour market, and follows a mixed ADP report yesterday, in so far as the weaker than forecast October reading was heftily offset by the sharp upward revision to September. The latter was above all unusual given that it was not the typical realignment with the official Payrolls data, which were in line with the initial ADP estimate.


from Marc Ostwald
 
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