In the absence of any key economic developments in the Asian trading session, Asian stocks traded mostly under the influence of the late, pre-opex US ramp momentum courtesy of another day of ugly economic data in the US (bad econ news is good news for liquidity addicts), closing solidly in the green across the board, led by China (+1.6%) and Japan (+1.1%) thanks in no small part to the latest tumble in the Yen carry trade, which mirrored a bout of USD overnight weakness.
And since a major part of the risk on move yesterday was due to ECB member Ewald Nowotny’s comments welcoming more QE, news from Eurostat that the final Eurozone CPI print in September was -0.1%, which confirmed Europe’s deflation continues, should only be greeted with even more buying as it assures further easing by the ECB – even if like Sweden the ECB has virtually no net supply left to monetize – is inevitable.
That said, what happens on Opex day, stays on Opex day, which is what today is with a number of October option expiries including FTSE 100, CAC, DAX, SMI, Eurostoxx, Eurodollars as well as S&P, Nasdaq and DJIA. And as shown before, there is a distinct pattern involving US option expiration, namely one where 8 out of 8 times there has been a rally ahead of OpEx…
… followed by prompt profit taking in the sessions thereafter. Will this time be different?
For now US equity futures are virtually unchanged. One can be certain that they won’t close there, especially not after algos get the latest Gartman flip-flop.
A quick look at regional markets starting with Asia shows equities traded mostly higher with financials outperforming following the strength seen in the sector during US trade on better than expected earnings from Citigroup , with firm lending data from China also supporting sentiment. Financials led the gains in the Nikkei 225 (+1.0%) and ASX 200 (+0.7%), while the Shanghai Comp. (+1.6%) was supported at the open after aggregate lending and new yuan loans beat expectations. Furthermore, there were reports margin lending rose and China’s NDRC approved USD 15bIn worth of investments in infrastructure projects. Finally, 10yr JGBs traded mildly higher despite the mostly positive risk tone in Asia.
Despite being disappointed by less than impressive corporate earnings from both sides of the pond, stocks continued to edge higher (Euro Stoxx: 0.8%), underpinned by the growing expectation of further policy easing by the ECB and the Fed refraining from hiking rates just yet. As a result, Euribor curve continued to flatten and in turn supported the upside by Bunds, in tandem with stocks.
Consumer staples and discretionary names underperformed on the sector breakdown , after the heavyweights Nestle (-2.0%) and Hugo Boss (-10.4%) cut forecast. On the other hand, Syria related war premium, together with the decrease in US crude output as indicated by the EIA yesterday, continued to support oil price which in turn ensured the outperformance by energy related names.
Today’s notable US earnings include GE and Honeywell, while also of note today sees a number of October option expiries including for FTSE 100, CAC, DAX, SMI, Eurostoxx, Eurodollars as well as S&P, Nasdaq and DJIA .
In FX markets, CAD failed to benefit from recent commodity strength, with the USD index residing in positive territory and weighing on commodity currencies, with AUD/USD testing the 0.7300 level to the downside, while NZD/USD approached its highest level in 31/2-months after New Zealand CPI beat expectations (Y/Y 0.4% vs. Exp. 0.3%), before the pair retreated on profit taking. Of note, heading into the CPI release, 9/14 analysts had expected the RBNZ to cut rates at their Oct 29th meeting, however, 10/16 analysts now expect the RBNZ to keep rates on hold at 2.75%. Elsewhere, the final reading of Eurozone CPI all printed in line with expectations (Y/Y -0.1%), seeing no reaction in EUR.
