October 26, 2018
Asian markets plummet as US futures indicate new downturns on Wall Street
Asian markets traded lower on Friday, October 26, as the main indices moved between gains and losses, as analysts wonder if the rally will last.
In China, stocks fell into negative territory at the end of the session. Japan's Nikkei 225 lost its initial gains. Australia's ASX 200 declined, with the financial sub-index in negative territory.
Movements in Asia followed rises on Wall Street, although analysts were skeptical of any possible recovery.
The ECB reaffirmed on Thursday that its €2.6 trillion asset purchase program will end this year and that interest rates could rise after next summer. The ECB's guidance has been consistent since June, despite the worsening economic outlook and as political turmoil in Italy looms over the common currency block. Analysts believe that markets remain skeptical about the ECB's interest rate hikes, as the inflation target has not yet been reached. The real expectation is that interest rates will remain at current levels in the medium to long term.
Thursday's rally in U.S. equities came after last session's massive sales did not continue in Asia. This gave support to the safe-haven currencies. Analysts continue to see persistent risks to the markets. They include trade tensions, Italy's budget problems, geopolitical uncertainty and concerns about US corporate results. Risk sentiment remains quite fragile.
During Friday's Asian trading session, the Japanese yen rose against the dollar, while the euro remained at a two-month low after the European Central Bank failed to convince the markets that interest rates would rise. The Australian dollar, often seen as an indicator of risk appetite, hit a 33-month low.
Oil prices fell on Friday and are heading into their third consecutive week of declines. Saudi Arabia's OPEC Governor said the market could be affected by oversupply soon. In addition, the decline in global equities is clouding demand prospects.
Gold remained stable on Friday, but on the rise for the fourth consecutive week. It is the longest series of weekly gains since January, amid growing concerns about corporate earnings of American companies and the global economic slowdown.
European markets are expected to open mixed on Friday.
The U.S. market made a correction
Stocks rose as Wall Street recovered from the previous session's downturn.
The U.S. market made a correction on Thursday, October 25. However, the outlook remains bearish.
Several factors have a negative impact on the markets: disappointment at poor business results, fears of rising interest rates, growing conflict between Italy and the European Union, criticism of Saudi Arabia and concern that global growth is losing strength.
The recovery of some technologies tries to eclipse other problems
Bullish session in Europe on Thursday 25 October, thanks to good business results within the technology sector in the United States.
After Wednesday's sharp decline in all markets, especially in the US, reasons are being sought to generate a rebound. After the end of the trading session, important results were presented, which gave a first upward movement.
At the European Central Bank hearing, Draghi acknowledges that uncertainties are still high. The most important thing about the appearance is the reference to the 'weakest current economic moment'.
He has often mentioned this subject which he considers to be caused by the trade wars, the Brexit, Italy and the emerging crisis. But he has made it clear that, for now, are not enough factors to change the forecasts and monetary policy of the entity.
On the subject of Italy, he has shown himself to be moderate. He acknowledges that it is hurting Europe, but that it is limited. He said, on a personal note, that he is convinced that there will be an agreement between Italy and the Eurozone.
Draghi face to face with the Italian budget crisis
The European Central Bank's monthly meeting with the markets comes this October in the midst of the Italian budgetary crisis.
Unanimity is absolute in the sense that the president of the monetary supervisor, Mario Draghi, remains faithful to the plans of the entity.
In the press release he spoke of the uncertainties and this has been added to the bad PMI of October, which came out recently.
The most important thing about Draghi's appearance is the reference to the 'weakest current economic moment'.
He considers that this weakness is caused by the trade wars, the Brexit, Italy and by the emerging crisis. However, he has made it clear that these factors are not sufficient to change the central bank's forecasts or monetary policy.
Economic data will be reviewed in December to see if the current moderate optimism is maintained.
Moreover, according to Draghi, the inflation target remains attainable.
He assures that not even a possible extension of the QE has been debated, so it will end in December. However, the European Central Bank will continue to buy back at maturity.
On the subject of Italy, he has shown himself to be moderate, acknowledging that there is damage. However, he says that the damage is limited. On a personal note, he is convinced that there will be an agreement between Italy and the Eurozone on budgets.
Federal Reserve Beige Book
The U.S. economy continues to expand at a moderate pace.
The Beige Book notes that economic activity has continued to expand at a moderate pace. It does so despite the fact that there has been an increase in the price of raw materials and that it is difficult to find skilled workers.
The economic dossier indicates that manufacturing production has increased, despite uncertainty regarding the cost of materials and shipments.
Consumer spending has increased at a modest rate. In addition, travel and tourism have continued their upward trend in almost all districts. Only North Carolina and South Carolina, affected by Hurricane Florence, are left out of the upswing.
The natural disaster has also had consequences on agricultural production, which has been mixed. However, some farmers have stressed that the rains were beneficial.
With regard to employment, it has been noted that there is a general lack of labour in the country. Companies have difficulty hiring engineers, sales and finance professionals, manufacturing and construction workers, as well as truck drivers.
400 Spread points with Germany
It is the level of the Italian risk premium where the pressure on the government would be unbearable.
It is a great incentive for strong hands to get long in the German bund and, at the same time, short in the Italian bund. When the spread reaches 400 points, which it will surely reach, they will go against it.
The Italian government does not have much chance of opposing the situation that lies ahead. Sooner or later the market will dictate the changes, and they will have no choice but to moderate budgetary expenditures.
It is not known whether it is a good strategy to turn the markets upside down and, in the end, give in.
The Italian banking sector is suffering terribly badly and this is spreading to banks all over the continent.
The outflows of money from the strong hands of Italy must be monumental at this point, remembering the stories of the corralito. Some media report that the Italian-speaking part of Switzerland is capturing Italian bank customers leaving their country.
Data from Germany
New decline in business climate, according to data from the IFO Institute.
The business climate in October, calculated by the IFO Institute in Germany, gives a reading of 102.8 from 103.7.
The current condition indicator is also worse than expected. The expectation indicator has a new decline.
All are worse than expected. As a result, the Dax has hit lows since December 2016.
[image] The exchange rate is always given for a currency pair. A currency by itself is worthless if it is not compared to another currency or other reference, such as gold. Therefore, whether in a flexible exchange rate or fixed exchange rate...
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