China's Data in Focus, Brent Prices Finding Support While Gold Nears Resistance

Commodity

Energy

Summary:

Wall Street pared earlier losses to end the day flat, but buyers continued to find some reservations from the sharp rise in Treasury yields overnight.

Market Recap

Wall Street pared earlier losses to end the day flat (DJIA +0.04%; S&P 500 -0.01%; Nasdaq -0.25%), but buyers continued to find some reservations from the sharp rise in Treasury yields overnight. A blowout read in US retail sales (0.7% month-on-month versus 0.3% forecast) has prompted a move in the 10-year yields back near its multi-year high at 4.83%, with stronger-than-expected US consumer spending casting some hawkish repricing in rate expectations for the December meeting and beyond. Likewise, the two-year yields are back above 5.20%, which marked a new 17-year high.

Nevertheless, corporate earnings optimism, validation for a continued rate pause in November and improved seasonality serve as key catalysts for buyers to push for a fourth-quarter rally. Further earnings outperformance were revealed from Bank of America and Goldman Sachs overnight, with the former tapping on higher-than-expected net interest income while the latter offered a more optimistic guidance for capital market activities. Morgan Stanley will be up today, along with Netflix's and Tesla's earnings after-market.

Perhaps one to keep on the radar may be Brent crude prices, which have been finding support off its Ichimoku cloud support on the daily chart lately. A blast at a Gaza City hospital on Tuesday brought some finger-pointing on both sides, which seems to put any cooling in the Israel-Palestine conflict less likely. Any inaction to recent diplomatic efforts could see the conflict drag for longer, while the risks of further escalation remain on the table. For now, the broader upward trend for Brent crude prices may remain as long as the Ichimoku cloud support holds, with any upside to place its September high on watch for a retest.

Asia Open

Asian stocks look set for a muted open, with Nikkei -0.27%, ASX -0.07% and KOSPI -0.15% at the time of writing. Key focus this morning will be on a series of economic data out of China, which includes its 3Q23 gross domestic product (GDP) figure, along with September industrial production and retail sales. China’s upcoming GDP is expected to improve from the previous quarter at 1% versus 0.8%. Further, retail sales are expected to mark its second straight month of recovery to 4.9% from previous 4.6%. On the other hand, fixed asset investment is expected to stay flat at 3.2%, while industrial production may come in lighter at 4.3% from previous 4.5%.

A stronger-than-expected showing in the data may support further signs of stabilisation in economic conditions, although overall recovery momentum may still be tepid. While any positive surprises may bode well for Chinese equities, a trend of improving data may still be needed to drive more sustained moves. For now, a breakdown of the key 12,300 support for the China A50 index continues to point to a downward trend in place, while its daily relative strength index (RSI) struggles to move above its key 50 level. The 12,300 level will serve as immediate resistance to overcome while a move to a new low this week may place the 11,800 level in sight for a retest.

On the watchlist: Gold prices inching towards key resistance

Safe-haven flows amid geopolitical tensions in the Middle East have remained the dominant catalyst for gold prices, with the yellow metal gaining more than 6% over the past two weeks while staying firm despite a sharp rise in Treasury yields overnight.

The risks of further escalation in the conflict may be supportive of prices for now, but the US$1,945 level may prove to be a crucial resistance to overcome. This level is where its Ichimoku cloud zone stands on the daily chart and previous three interactions with the zone had not been met with a successful upward break. A successful move above the US$1,945 level may support a move to retest the psychological US$2,000 level next, while on the other hand, another failed attempt could keep the broader downward trend intact with the formation of a new lower high. China's Data in Focus, Brent Prices Finding Support While Gold Nears Resistance_3

China's Data in Focus, Brent Prices Finding Support While Gold Nears Resistance_3

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CMC

Forex

Economic

European markets just about managed to eke out a gain yesterday, but it was hard going, with the FTSE100 outperforming largely due to outperformance in health care.

With diplomatic efforts ongoing in the hope of preventing a further escalation of the crisis, the news that President Biden is going to Israel later this week, means it's unlikely that we'll see Israel mount an incursion into Gaza in the short term. That said the horrific bombing of the Gaza hospital overnight has complicated matters with a number of leaders cancelling their meetings with the US President amidst claim and counter claim as to whose responsibility the blast was, sending oil prices sharply higher.

US markets finished a choppy session largely unchanged, initially opening sharply lower, then rebounding, despite a sharp move higher in yields after retail sales in September came in well above expectations, rising 0.7%. The August sales numbers were also revised up as well.

Despite the rise in yields, which saw the US 2-year yield move above 5.2% for the first time since 2006, investors took the view that, with rates at current levels and the US consumer still looking resilient, the prospect of another rate hike, probably isn't the end of the world, thus limiting the downside for US markets.

This morning's European open looks set to be a positive one with Asia markets having to absorb the latest economic numbers from China.

The last 3 months has seen little indication that the Chinese economy would see a significant improvement on its Q2 GDP numbers of 0.8%, given the direction of travel of both industrial production and retail sales data, both of which have struggled over the quarter, particularly consumer spending.

Today's Q3 GDP numbers would appear to run counter to that, reinforcing the scepticism about the accuracy of Chinese economic numbers, especially GDP, there is little doubt that the Chinese economy is being hit by a slowdown in global, as well as domestic demand if recent trade data has been any sort of guide.

China Q3 GDP came in at 1.3%, well above expectations of 0.9%, while Q2 was revised lower to 0.5%, while September retail sales rose by 5.5%, beating expectations of 4.9%, and industrial production came in at 4.5%.

This morning's industrial production numbers were pretty much in line with previous months remaining steady , however there was a modest improvement in retail sales, which runs counter to the narrative from a lot of high-profile retail companies that Chinese demand for luxury goods has been waning in recent months.

Consumer spending has been where the real weakness lies sharply down from Q2, Q3 has seen retail sales slow sharply, with gains of 2.5% and 4.6% in July and August, rounded off by 5.5% in today's September numbers. While today's numbers do suggest a modest improvement in Q3 the extent of the rebound does raise questions given the weakness of recent trade data as well as PMIs.

As we look towards today's data releases we have UK CPI for September, along with the final readings for EU CPI.

Starting with the UK, the Bank of England caught a lot of people on the wrong foot when they decided by a narrow majority to keep interest rates unchanged at 5.25% last month.

The main reason why they decided to call a halt to 14 successive rate rises may well have been the sharp slowdown in core CPI that we saw in data released the day before, as well as concern that the UK economy has yet to feel the full effects of the previous rate hikes, and that more time is needed to assess the full pass-through effects.

It's about time this penny dropped given the challenges facing the UK economy and its good that the MPC has finally woken up to this, although there are differing views amongst MPC members of how much has trickled down with arch dove Swathi Dhingra arguing that only 25% of the impact has been felt.

In August, core CPI slowed from 6.9% to 6.2% while headline CPI slipped to 6.7% when most people had been expecting an increase. This trend of slower inflation is expected to continue today with September CPI inflation set to slow 6.6% and core inflation forecast to slow to 6% from 6.2%.

One of the major leading indicators in recent months for a slowdown in inflation has been the slowdowns being seen in the headline PPI numbers since the start of the year, although there is evidence that these are starting to bottom out and pick up again.

Nonetheless these have been in negative territory for both input and output prices over the last 2-months, which ought to bode well for further weakness in CPI inflation going forward, although higher fuel prices are likely to keep underlying inflation sticky.

Further evidence of slowing inflation should make life easier for the Bank of England when they meet in just over two weeks' time, in terms of keeping rates on hold, with new forecasts due at the November meeting we could well find that the central bank is done and from here on in the main question will be how long rates are likely to stay at current levels.

EU CPI for September is expected to be confirmed as slowing to 4.3% from 5.2% in August while core prices are expected to slow to 4.5% from 5.3%, also reinforcing the idea that the ECB is done when it comes to further rate hikes.

EUR/USD – looking to retest the highs from last week to open a retest of the 1.0740 area. The main support remains at the October lows at 1.0450, as well as the 1.0400 area which is 50% retracement of the 0.9535/1.1275 up move.

GBP/USD – struggling to rally for the moment and needs to rise above the 1.2340 area to unlock a move to the 1.2430 area and 200-day SMA. A move below 1.2000 targets the 1.1835 area, 50% retracement of the move from the record lows at 1.0330 to the recent peaks at 1.3145.

EUR/GBP – edging back towards the September highs and the 200-day SMA between the 0.8700 and 0.8720 area. Still have trend line support from the August lows, now at 0.8625 and which is currently intersecting just above at the 50 and 100-day SMA.

USD/JPY – dipped to the 148.75 area yesterday but continues to find itself capped at the highs this month at 150.16, with a break of 150.30 targeting a move towards 152.20.

To stay updated on all economic events of today, please check out our Economic calendar

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Alex

Economic

Australia's economic outlook remains subdued as indicated by the Westpac Leading Index, which, though it rose slightly from -0.48% to -0.34% in September, continues to signal prolonged weak conditions. Fourteen successive months of subzero readings on the headline index growth rate project that the anaemic sub-trend growth momentum is anticipated to linger into 2024.

Westpac anticipates the nation's GDP growth to decelerate to 1.2% in 2023, maintaining this tepid pace into the initial half of 2024, with an annualized growth rate pegged at 1.1%. This projection is notably beneath the expected population growth, which is projected to hover around 2.3%.

The recent minutes from RBA's October meeting shed light on the central bank's discomfort with the current inflationary environment, revealing its "low tolerance" towards unexpected inflationary spikes.

As the market casts its gaze towards the upcoming RBA meeting slated for November 7, Westpac anticipates revisions in the near-term forecasts for headline inflation. However, adjustments to the central bank's medium-term view, a critical determinant for any further rate hike, are not expected.

However, this anticipation hinges significantly on the unveiling of the September quarter CPI, scheduled for release on October 25. Any significant surprises in this data could recalibrate expectations and potentially prompt the RBA to rethink its stance.

Source: ActionForex

To stay updated on all economic events of today, please check out our Economic calendar

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FastBull Featured

Daily News

[Quick Facts]

1. Attack on a Gaza hospital heightens Middle East tensions.

2. U.S. retail sales data for September again exceeded expectations.

3. Fed's discount rate meeting minutes: Cleveland Fed sought to raise the discount rate in September.

4. Russia's central bank says OPEC+ would discuss output increases early next year.

[News Details]

Attack on a Gaza hospital heightens Middle East tensions

An Israeli strike has killed more than 500 Palestinians at Al-Ahli Arabi Hospital in Gaza City on Tuesday night, local time. This happened on the eve of U.S. President Joe Biden's visit to the Middle East. The incident sharply raised regional tensions. After the strike, Jordanian, Egyptian, and Palestinian leaders canceled a scheduled summit with Biden, which complicated Biden's efforts to ensure that the Israel-Hamas conflict will not expand throughout the Middle East. Traders are wary that the war will expand beyond Gaza, and Iran who supports Hamas will be involved. If the conflict expands, it could strike crude oil supply flows. Then the crude oil market, which has already been tight due to OPEC+ production cuts, may come under further pressure. The safe-haven gold surged again in Wednesday's Asian trading session.

U.S. retail sales data for September again exceeded expectations

U.S. retail sales in September rose 0.7% from a month earlier, higher than the expected 0.3%, but down from 0.8% in the previous month. Industrial production rose 0.3% m/m in the same month, higher than the expected 0.0%. September retail sales and industrial production data were both higher than expected, but risk-on capital flows dominated the market. The increase in retail sales was partly due to higher gasoline prices. Retail sales, excluding autos, rose 0.6%, beating expectations for a 0.2% increase, but lower than the previous 0.9% increase. The strong retail sales data is a key measure of consumer spending and suggests that the overall U.S. economy is strong. While the market generally expected the Fed to be done raising interest rates in the current cycle, unexpectedly strong consumer spending complicates policy decisions. According to CME Group's Futures Market Pricing Tool, the market raised the probability of a December rate hike to about 43% after the release of the retail sales data, compared with 34% on Monday.

Fed's discount rate meeting minutes: Cleveland Fed sought to raise the discount rate in September

Directors at one of the Federal Reserve's 12 regional banks sought to raise the discount rate in September, while the other outposts favored the decision to hold it, according to minutes of discount-rate meetings released by the Fed on Tuesday. Directors at the Cleveland Fed board supported a 25 basis-point increase. Fed officials unanimously agreed last month to leave the federal funds rate unchanged at its highest level in 22 years, a target range of 5.25%-5.5%, and also left the discount rate unchanged at 5.5%. The discount rate refers to the rate at which banks borrow from the Fed's back-up lending arrangements.

Russia's central bank says OPEC+ would discuss output increases early next year

Due to the fear that the conflict between Israel and Hamas may expand to oil-producing countries, international crude oil prices continue to rise. Last week, Brent crude oil rose 7.5%, the largest single-week increase since February. The conflict between supply and demand is one of the factors affecting crude oil prices. Russia's central bank stated that oil output by Iran and Venezuela, which are not subject to OPEC+ quotas, could slow down significantly, and that OPEC+ would discuss a possible increase in oil production in early 2024 if the global oil supply deficit worsens further. Russian Deputy Prime Minister Alexander Novak said it was too early to discuss OPEC+'s November decision.

[Focus of the Day]

UTC+8 10:00 China GDP YoY (Q3)

UTC+8 14:00 U.K. CPI and Retail Prices Index MoM (Sept)

UTC+8 17:00 Eurozone Core CPI Final YoY & MoM (Sept)

UTC+8 22:30 U.S. EIA Crude Stocks for the Week Ended October 13

UTC+8 24:00 Fed Governor Waller speaks on the economic outlook

UTC+8 00:30 Next Day: New York Fed President Williams delivers a speech

UTC+8 02:00 Next Day: The Federal Reserve releases its Beige Book on the state of the economy

UTC+8 03:15 Next Day: Fed's Harker speaks on labor challenges

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Thomas

Economic

Central Bank

China's economy found a foothold in the third quarter as the government stepped up support to boost growth and consumer spending picked up, while the property market remained a drag.

Gross domestic product increased 4.9% in the July-September period from a year prior, data released by the National Bureau of Statistics showed Wednesday. That was stronger than the median forecast among economists of a 4.5% expansion. Compared to the second quarter, GDP grew 1.3%, better than expectations.

Other key figures from the data:

Industrial output rose 4.5% in September from a year earlier, above the median estimate of a 4.4% increase.
Retail sales expanded 5.5% in September; median forecast was 4.9%.
Fixed-asset investment increased 3.1% in the first nine months of the year compared to the same period in 2022, lower than the median forecast of 3.2%.
Property investment fell 9.1% in the January-to-September period, worse than projections.
The jobless rate was 5% at the end of September, improving from August.
Economic activity has shown some signs of stabilisation in recent weeks as government support began to take hold. Factory activity has gradually picked up, a drop in exports is slowing and household consumption is recovering. That's provided hope that China can achieve a government growth target of about 5% for the year.

Other sectors aren't holding up as well: The property sector remains a significant drag as home sales continue falling and a credit squeeze among developers widens — with the clock ticking for Country Garden Holdings Co to avert its first public dollar bond default. Consumer spending during this month's Golden Week holiday period wasn't as robust as the government had hoped, and deflation risks are persistent.

China's Growth Beats Forecasts as Consumer Spending Strengthens_1

On a year-on-year basis, growth was expected to soften in the third quarter from the 6.3% pickup in the April-to-June period. That's largely due to a more favorable base of comparison, since the period ended September last year was after the lockdown in Shanghai lifted.

Even so, weakness within the economy is likely keeping Chinese leaders on watch for whether to roll out more support in a bid to keep the recovery on track.

Authorities are considering issuing more sovereign bonds this year to spend on infrastructure, Bloomberg News reported last week, as well as mulling ways to shore up stock market confidence. Economists also expect China to further cut interest rates and banks' reserve requirement ratio this year.

Source: Bloomberg

To stay updated on all economic events of today, please check out our Economic calendar

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TD Securities

Commodity

Gold Price Technical Analysis

Gold prices started a strong increase after the Israeli–Hamas war intensified. The price rallied above the $1,890 and $1,900 resistance levels to move into a positive zone. Today, US President Joe Biden is scheduled to visit Israel and Jordan, where he will address the ongoing conflict with both Israeli and Arab leaders.

The 4-hour chart of XAU/USD indicates that the price gained pace above the $1,900 resistance. It settled above the $1,900 level, the 100 Simple Moving Average (red, 4 hours), and the 200 Simple Moving Average (green, 4 hours).

It even surpassed the 76.4% Fib retracement level of the downward move from the $1,947 swing high to the $1,810 low. The current price action suggests there are high chances of more upsides above $1,930.

Immediate resistance is near the $1,935 level. The first major resistance is $1,950. An upside break above the $1,950 level could send the price soaring toward the $1,965 resistance. The next major resistance is near the $1,980 level, above which Gold could revisit the key $2,000 resistance zone.

On the downside, the price might find support near the $1,900 level. There is also a connecting bullish trend line forming with support near $1,895 on the 4-hour chart.

The next key support is near the gap area at $1,880. If the bulls fail to protect the $1,880 support, there is a risk of a major decline. In the stated case, the price could decline toward the $1,840 level.

Looking at crude oil prices, there was a decent increase toward the $88 resistance and the bulls might now aim a move toward $92.

Economic Releases to Watch Today

UK Consumer Price Index for Sep 2023 (YoY) – Forecast +6.5%, versus +6.7% previous.

UK Core Consumer Price Index for Sep 2023 (YoY) – Forecast +6.0%, versus +6.2% previous.

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Owen Li

Commodity

Energy

Energy - Australian LNG strike called off

The oil market is trading firmer during the Asian early morning with ICE Brent up more than 1.6% at the time of writing, as fears grow over the conflict between Israel and Hamas. This is after a hospital bombing in Gaza, which killed hundreds. Hamas has blamed Israel for the bombing, while the Israelis have said it was militants. Either way, this does little to contain the conflict. Jordan was scheduled to host a summit with Arab leaders and President Joe Biden today, however, this has been cancelled following the bombing.

API numbers released overnight will also be providing a bit of support to the market. US crude oil inventories fell by 4.38MMbbls, quite a bit more than the roughly 500Mbbls draw the market was expecting. Cushing crude oil inventories are reported to have also fallen by around 1MMbbls, while for refined products, inventory declines were also seen with gasoline stocks decreasing by 1.58MMbbls and distillate stocks edging down by 612Mbbls.

Turning to the gas market, unions in Australia have called off strike action which was scheduled to start on Thursday at Chevron’s Gorgon and Wheatstone LNG facilities. This is after members agreed to the latest labour deal with Chevron. Further potential strike action has been a risk lingering in the gas market with these two facilities making up around 6% of global LNG supply.

As for the calendar today, apart from the usual EIA weekly inventory report, there will be a data dump from China, which will include third-quarter GDP, September industrial production numbers and the second batch of trade data for September. The consensus for 3Q GDP growth is 4.5% YoY.

Agriculture - Sugar rallies on the back of rains

Sugar prices received a boost yesterday with No.11 raw sugar settling 1.63% higher at USc27.49/lb- levels last seen back on 19 September. Heavy rains in Brazil are slowing the loading of vessels at ports, which will likely push some shipments which were scheduled for October into November. These logistical delays come at a time when there is already plenty of supply concern in the sugar market due to expectations of poorer output from both India and Thailand in the 2023/24 season.

Recent data from the Ukrainian Agriculture Ministry shows that winter grain plantings rose 19.4% YoY to 3.3m hectares as of 17 October. This includes 3.02m hectares of winter wheat, which is up 20.7% from last year.