U.S stocks were almost unchanged on Friday after paring earlier gains in the second half of the session. At the close, the Dow Jones Industrial Average rose 0.22%, while the SP 500 index and the NASDAQ Composite index finished just above break-even.
Financials led advancers as JPMorgan Chase, Wells Fargo and Citigroup, all reported third-quarter earnings data before the opening bell, and posted better-than-expected quarterly results. Stock investors were taken for a choppy ride this week, with sentiment largely driven by Chinese economic data, U.S earnings reports, and comments from the U.S Federal Reserve about the possibility of a move on interest rates this year.
The second presidential debate between Democrat Hillary Clinton and Republican Donald Trump started the week-gone-by without causing any significant moves on the major markets as investors continue to retain their view that Clinton holds an edge going into presidential election against her Republican rival. The only real market that witnessed some major moves based on the progress of the candidates was the USD/MXN(Mexican Peso) cross. The Mexican Peso rallied strongly against the USD after the Trump campaign was hit by the sexual harassment allegations against Trump.
The past week also witnessed the return of Chinese traders after a week-long break, and was marked by a significant drop in the local currency. The Chinese Yuan dipped to a six-year low against the U.S dollar last Monday, after the central bank’s announcement that the country’s foreign exchange reserves dropped more than expected in September. This drop in reserves marked a decline for the third month in a row and once again rang alarm bells over capital outflows from the world’s second-largest economy.
Chinese economic data for September set the tone for markets in the second half of the week ending on October 14th. While Thursday’s disappointing export-import data spurred concerns over weak demand in both China itself and other parts of the world such as the U.S, Europe and most part of Asia, Friday’s better-than-anticipated inflation results helped ease worries about the health of Chinese economy and spurred a bounce back in stock markets.
The U.S dollar continued to sustain its strength and finished the week higher against most of its peers as solid data on U.S. retail sales and producer prices reinforced the list of data releases supporting perceptions of a reasonably strong US economy and also reinforced perceptions of inflation making progress towards the central bank’s target.
As stated by the Census Bureau on Friday, sales at U.S. retail stores rebounded to 0.6% in September, after declining 0.3% in August. Core retail sales that strip out sales of automobiles also posted a gain of 0.5%. The data was in line with expectations. Producer prices and core producer prices, increased 0.3% and 0.2%, respectively, which were stronger than the market’s forecast.
Positive figures are believed to nudge a data-dependent Fed closer to a rate hike decision in the coming months. In an interview with The Wall Street Journal on Friday, New York Fed President William Dudley stated that he expected a rate rise to come as soon as this year.
Dudley’s remarks followed comments earlier in the day from Fed Chair Janet Yellen that indicated that the Fed might want to let inflation run hot for a while. Faced with an unusual situation of weak demand against strong supply, Yellen supposed that the central bank may be inclined to maintain easier monetary policy for longer. The comments were considered as dovish, but markets were not seeing them as a reason for the central bank to back-off from raising rates by year end.
Looking ahead to the coming week, investors focussing on the U.S dollar will be waiting for multiple economic data releases through the week. September consumer price data is due to be released on Tuesday. Building permits data is slated for Wednesday. Speeches by Fed officials including Fed Vice President Stanley Fischer and New York Fed President William Dudley are also scheduled in the week, in addition to the regular economic releases released every week such as Jobless Claims and Energy Inventories Data.
Moving on to the EU, the EUR observed the most severe weekly loss since the week ending June 24. The euro dropped below 1.10000, collapsing to the lowest since July 27th versus the U.S dollar amidst talks about the European Central Bank extending the QE at next week’s meeting. ECB President Mario Draghi has continuously stated that ECB policymakers are comfortable with the current level of stimulus, but may be willing to increase it anytime, if the economy weakens and demands a bigger stimulus.
At the last ECB meeting, President Draghi expressed more confidence about the outlook for the Eurozone economy, and even stated that the central bank had not discussed about changes to the QE program. Interest rates are expected to remain unchanged at the ECB meeting on Thursday. However, if Mario Draghi reinforces his concerns about the economy and puts greater emphasis on the need for more stimulus, further losses in the euro currency are likely.
Over in the U.K, the Sterling will also be under the spotlight next week given a busy economic calendar. From Tuesday to Thursday, the British pound will be affected by the results of data on inflation, average earnings, retail sales and employment numbers.
Above all, the outcome of the British High Court’s proceedings regarding the participation of the U.K Parliament in negotiations on the future EU-U.K. relationship will also exert significant effect on the GBP and the London Stock Exchange, not to mention indirect effects on the Euro Currency and European Stock Markets as well.
Last week, Prime Minister May made a concession to allow the Parliament to scrutinize the government’s plan for leaving the EU before she begins formal talks. However, PM May argued that she has the sole right to determine when Article 50 is invoked. In case the court finds that Parliamentary approval is needed, it would delay the process beyond the first quarter of 2017, as most parliamentarians are in favor of remaining within the EU. Nevertheless, regardless of the outcome from the high court, the case is likely to be sent to the Supreme Court, which may hear the case before the end of the year.
Out in Canada, the CAD traded higher this week as oil prices hovered near 4-month highs. No major economic reports were released during the past week, so a rise in crude prices played a key role in sustaining the Canadian dollar’s strength against its American counterpart. However, next week the focus will return to the Canadian economy, when its central bank will announce its rate decision on Wednesday. Prior to the Bank of Canada’s meeting, readings on August’ manufacturing sales will be released on Tuesday. Economic data on Canadian retail sales and inflation will round up the week for the CAD.
While the Australian dollar closed the week above the flatline, the Kiwi extended losses for the second consecutive week. In the coming week, the New Zealand dollar will take a back seat as only CPI data is due for release. In Australia, the minutes from the last central bank meeting will be released ahead of September data on the labour market. Another set of data releases that are likely to have a significant impact on the Australian dollar include Chinese third-quarter GDP data, as well as Chinese retail sales and industrial production numbers, that are slated to be published on Wednesday.