31.10.14 Friday Morning

Monday morning brought with it what looked like a strong start to the week for risk assets. News that the stress tests of large European financial institutions were better than expected revived appetite during the Asian session. But, as has been the case recently, traders withdrew capital from equities and peripheral debt at the open and bid gilts and bunds. Matters then worsened when German business sentiment fell, which quickly pushed the Dax to session lows. The FTSE 100 closed out the session at 6,363, down just over 25 points on the day. The main corporate news was that of tech firm Twitter. Their shares were crushed in the after-hours market as they disappointed on Q3 earnings and guidance.

The overnight session leading into Tuesday was fairly mixed, with the MSCI Asia down 0.1 percent. Japanese small business confidence fell against a higher print for retail sales. European equities once again were set to open higher only to then be sold shortly after the bell sounded. News from British banking group Lloyds was sold from the market, as the firm announced fresh charges form the mis-selling scandal. The shares were soon sent more than 3 percent lower to just above 73p. The broader market, however, managed to stage a positive day, closing 0.6 higher as of 16.30. Facebook was then later the hot topic, as initial reactions were positive to its earnings release. Sentiment then turned sharply as guidance on CAPEX from the conference call cut over 8 percent off the shares in seconds.

Wednesday brought with it the all-important end to QE3, the Fed’s latest attempt to reduce the unemployment rate in the US. The market has been generally positive on the event, refraining from shedding exposure to equities as the Fed withdraws the final lot of liquidity. Indeed, the FTSE 100 closed out a strong session, being up by more than 0.8 at the close. But, predictably, volatility soon ensued in the bond and equity market as the minutes landed across the wires. The Dow and S&P 500 immediately spiked lower as algorithms fired sell orders into the market. Minutes after the open, the Dow was 70 points lower, comfortably back below the 17,000 mark. But sanity prevailed and investors stepped in to pick up risk. The market closed up on the day, making a critical point for the market: the day the Fed pulled out of the market prices were higher.

Moving into the latter stages of the week, major equities struggled to cling onto the gains made earlier this week as corporate earnings didn’t ignite any investor confidence in the FTSE or DAX, trading pretty flat throughout the day. However the Fed’s decision to put QE3 to bed was backed up as advance GDP came in 0.4% higher than expected hence extending the Dow’s positive run above 17,000. This extraction of dollars from the market caused an appreciation of the USD on the vast majority of major currencies. The EUR/USD fell 0.35% down to $1.2574, this is a serious retreat from the $1.27 levels that were seen at the start of the week.

Furthermore the markets have been stunned by the Bank of Japan as the week comes to a close. The BoJ has seen the devastating effects of deflation on the economy and has reacted to slowing labour market momentum and has shocked investors. The BoJ announced that they would increase purchases of domestic and foreign assets, this has meant increased purchases adding to its government pension fund which already the world’s largest pension fund. As yen floods the market and dollars begin to exit we have seen a surge in USD/JPY increasing to a seven year high at 111.66.

Stock of the week: Facebook (FB.US)

After what can be described as a resounding rally from its lows when the broader market sold off during the beginning of the month, Facebook reported Q3 results on Tuesday after the bell. The shares closed comfortably above $80 as investors waited to hear about the numbers, marking a relatively unchanged performance on the day for the shares. Facebook then announced 1.35bn monthly active users, a good increase on the last quarter. The company also announced earnings that comfortably beat expectations together with higher sales. But then the conference call came. With the shares chopping around the $80 level after the update, investors leapt for the exit when CEO Mark Zuckerberg said that spending was to increase, dampening guidance. The shares promptly sank below $75 to around $73. But many analysts remain bullish on the company arguing that the market will chase its prospects higher after the shock of higher CAPEX is disseminated.

Monday 3rd Nov
- AUD – Building Approvals
- GBP – Manufacturing PMI
- USD – ISM Manufacturing PMI
- CAD – BOC Gov Poloz Speaks

Tuesday 4th Nov
- AUD –Retail sales
- AUD – Cash rate
- GBP – Construction PMI
- USD – Trade Balance

  Wednesday 5th Nov
- JPY – BoJ Gov Kuroda Speaks
- GBP – Services PMI
- USD – ADP Non-farm employment change
- USD – Non-Manufacturing PMI

Thursday 6th Nov
- AUD – Employment Change
- GBP – Asset Purchase Facility
- EUR – ECB Press Conference
- USD – Unemployment claims.

Friday 7th Nov
- AUD – RBA Monetary Policy statement
- CAD – Unemployment Rate 

- USD- Non-Farm unemployment change