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Major US stock indexes closed trading mixed, as investors took a break after the recent rally, triggered by stronger than expected corporate reporting and hopes for progress in trade negotiations between Washington and Beijing.

According to Refinitiv’s IBES, of the 383 S&P 500 companies that have already reported third quarter results, nearly 75% have exceeded expectations.

Recent reports of trade negotiations between the US and China provide no reason to reassure the market. US President Donald Trump and his Chinese counterpart Xi Jinping have not yet decided on a place to sign the so-called “first phase” of a trade deal. In addition, media reported that both sides are still continuing to work on the details of the deal, which, as previously stated, could be signed later this month. According to media reports, China insists that US President Trump abolish additional tariffs on Chinese goods worth about $ 125 billion, introduced in September.

Market participants also drew attention to data from the Department of Labor, which showed that US labor productivity unexpectedly declined in the third quarter - by 0.3% after rising 2.5% in the second quarter. Performance was expected to grow by 0.9%. At the same time, unit labor costs grew by 3.6% in the third quarter after rising by 2.4% in the second quarter. Economists had expected unit labor costs to rise 2.2% from the 2.6% jump originally announced the previous month.

Most DOW components recorded an increase (20 out of 30). The biggest gainers were McDonald's Corp. (MCD; + 1.13%). The outsider was Walgreens Boots Alliance (WBA; -3.31%).

S&P sectors completed bidding in different directions. The largest decline was shown in the base materials sector (-1.2%). The health sector grew the most (+ 0.3%).

At the time of closing:

Dow 27,492.56 -0.07 -0.00%

S&P 500 3,076.78 +2.16 +0.07%

Nasdaq 100 8,410.63 -24.05 -0.29%

Analysts at Wells Fargo, note that Nonfarm productivity unexpectedly contracted during the third quarter following strong gains in the first half of the year. They point out that weak performance added to the pickup in unit labor costs. 

“Productivity contracted at an annualized 0.3% pace in Q3 as a 2.4% increase in hours worked more than offset a 2.1% gain in business output.

We continue to expect productivity to moderate in the coming quarters, though with the pace remaining stronger than the 1% average registered since 2011.

Tight labor market conditions pushed compensation costs up at a 3.3% clip in Q3. Unit labor costs (ULC) - a better measure of inflation pressure - rose at an even stronger 3.6% pace.

As wages climb higher and productivity moderates, rising ULCs are apt to put greater pressure on corporate profits in coming quarters.”

The U.S. Energy Information Administration (EIA) revealed on Wednesday that crude inventories increased by 7.929 million barrels in the week ended November 1. Economists had forecast a gain of 2.000 million barrels.

At the same time, gasoline stocks declined by 2.828 million barrels, while analysts had expected a drop of 2.000 million barrels. Distillate stocks reduced by 0.622 million barrels, while analysts had forecast a decrease of 1.250 million barrels.

Meanwhile, oil production in the U.S. was unchanged at 12.600 million barrels a day.

U.S. crude oil imports averaged 6.1 million barrels per day last week, down by 620,000 barrels per day from the previous week.

• Data shows labor market is strong
• Data dependence means reassessing full employment
• Labor market is really strong with low unemployment
• Fed officials have a lower view of what sustainable level of unemployment is based on low-inflation
• Job growth is still solid despite slowdown in exports, business investment in the global economy
• Slowing global growth and muted inflation pressures argue for a more accommodative policy
• Monetary policy is moderately accommodative right now
• Three cuts we did were very effective at managing risks to the U.S. economy
• Fed will be data dependent and preemptive going forward
• Fed's change from raising rates cutting rates was about assessing the risks to the outlook
• Monetary policy does have some limitations so it would be nice to have fiscal policy aligned when addressing downturns
• Monetary policy going forward should have a commitment to asymmetric 2% inflation goal
• Does think that 2% inflation is achievable
• Monetary policy should be somewhat accommodative to support growth of a more inclusive labor market

The Ivey Business School Purchasing Managers Index (PMI), measuring Canada’s economic activity, fell to 48.2 in October from an unrevised 48.7 in September. That was the lowest reading since March 2015.

Economists had expected the gauge to hit 54.4.

A figure above 50 shows an increase while below 50 shows a decrease.

Within sub-indexes, the inventories indicator fell to 45.6 in October from 50.5 in the prior month, while the employment measure dropped to 47.2 from 49.6 and the supplier deliveries gauge decreased to 45.1 from 50.2. At the same time, the prices index edged up to 57.0 in October from 56.9 in September.

Aline Schuiling, the senior economist at ABN AMRO, points out that the details of the European Commission’s consumer sentiment survey showed that expectations about the labour market have deteriorated noticeably since the middle of this year.

• “Consumers’ assessment about unemployment during the next twelve months (balance of percentage reporting increase and percentage reporting fall) has risen by more than ten percentage points between May and October (to 15.9 from 5.7). This suggests that the decline in overall consumer sentiment (to -7.6 from -6.5) during that period was largely driven by the deteriorating outlook for the labour market and the resulting decline in job security.
• When looking at past changes in the consumers’ assessment of the outlook for unemployment and the actual unemployment rate, it turns out that changes in sentiment about the labour market are a good leading indicator for changes in the unemployment rate, with a lead of six months to one year.
• Other indicators such as a drop in temporary employment also point in the direction of a sharp deterioration in labour market prospects and rising unemployment over the next year.”

Analysts at TD Securities note that, even as New Zealand’s economy is showing signs of slowing, the labour market has held up remarkably well.

• “With the unemployment rate dropping to an 11yr low to 3.9% in Q2, we pencil in a mild reversal for Q3 to 4.1%, an outcome that should not alarm the Bank given its Aug MPS forecasts are ~4.2%. For wages ex-overtime we forecast a +0.5% gain, placing annual wage growth at 2.2%.”

U.S. stock-index futures rose slightly on Wednesday as investors digested a better-than-expected Q3 corporate earnings season, while waiting for signals on an easing of the protracted U.S.-China trade conflict.

Global Stocks:

Bill Diviney, the senior economist at ABN AMRO, notes that Fed rate cut expectations declined further last Friday, with pricing for a January cut falling from around 50% to just 30% following the better-than-expected nonfarm payrolls print.

• “Alongside the upside surprise in the headline print (a gain of 128k vs expectations of 85k, despite the GM strike-related distortions), there were net positive revisions to the past two months of +95k – pointing to a rather stronger labour market than would be expected considering how subdued business confidence is. However, as if to remind markets of the persistent weakness in the manufacturing sector, September factory orders (excluding lumpy aircraft items) showed a contraction of -0.1% mom, with August revised down to -0.2% from an earlier flat reading.
• The forward-looking indicators for employment also remain weak, with the ISM manufacturing employment index still in contraction territory at 47.7 in October, with services not much better at 50.4 as of September (sharply down from the average of 56.0 in H1 2019). Indeed, we expect payrolls growth to continue softening in the coming months.
• With private consumption growing at well-above trend rates in Q2 (+4.6%) and Q3 (2.9%), we, therefore, expect payback in the fourth quarter, with overall GDP growth potentially dipping below 1.0% annualiяed. Such a weak outturn would come as a reality check to markets that have grown accustomed to a resilient US economy, and could even raise fears of a recession once again.”

• Brexit it is still a huge uncertainty and also uncertainty on U.S.-China relations
• Adjustments have not been anywhere near large enough to change the dynamics if there was a big negative shock

(company / ticker / price / change ($/%) / volume)

NIKE (NKE) initiated with Outperform at Raymond James; target $100

Analysts at TD Securities note that Germany's factory orders posted a 1.3% m/m gain in September, beating consensus of 0.1%.

• “Manufacturing shipments posted a -1.3% m/m decline, pointing to clear downside risks to tomorrow's IP data. We've changed our forecast and now look for German IP to come in at -1.0% m/m tomorrow morning (mkt -0.4%).”

Barrick (GOLD) reported Q3 FY 2019 earnings of $0.15 per share (versus $0.08 in Q3 FY 2018), beating analysts’ consensus estimate of $0.12.

The company’s quarterly revenues amounted to $2.678 bln (+45.8% y/y), generally in line with analysts’ consensus estimate of $2.703 bln.

GOLD rose to $16.81  (+1.63%) in pre-market trading.

• Thinks the neutral rate probably has moved down
• Says it is hard to be sure just how accommodative Fed policy is now
• Inflation has been on the light side and below the Fed's 2% goal
• It is important for Fed to be clear what it means by symmetry on its 2% inflation objective 
• He would be comfortable if inflation rises to 2.5%

• Sees GDP expanding by 1.4% both in 2020 and 2021 (previous estimate +1.5% in both years)
• Lowers Germany's growth forecast to 0.5% this year from 0.8% previously estimated, sees GDP expanding by 1.2% in 2020 (previous estimate +1.7%)
• Lowers France's growth forecast to 1.2% this year from 1.3% previously estimated, and lowers estimates also for 2020, 2021
• Confirms its forecast UK's GDP growth to slow to 1.2% this year from 1.4% in 2018, expects a rebound to 1.4% in 2020, assuming orderly Brexit

• Says OPEC compliance with oil output cuts is increasing

The Mortgage Bankers Association (MBA) reported on Wednesday the mortgage application volume in the U.S. edged down 0.1 percent in the week ended November 1, following a 0.6 percent increase in the previous week.

According to the report, applications to purchase a home dropped 2.5 percent, while refinance applications increased 1.8 percent.

Meanwhile, the average fixed 30-year mortgage rate fell to 3.98 percent from 4.05 percent.

“U.S. Treasury yields once again exhibited some intraweek volatility before declining sharply toward the end of the week,” noted Joel Kan, associate vice president of economic and industry forecasting.

Analysts at TD Securities note that the FOMC voters Evans and Williams will participate in separate Q&A sessions on Wednesday, where they're likely to revisit their monetary policy views.

• “We expect them to stay close to the FOMC message that monetary policy is in a "good place" and that the easing implemented so far by the Fed should be enough to support the economy, while also noting that risks to the outlook remain.”

Analysts at Rabobank note that Germany has become increasingly dependent on exports for its economic performance, supported by an initially strong competitive position and robust demand for capital goods.

• “The negative consequences of this export-led model are now starting to materialize.
• We believe there is a colossal need for government and private sector investment in infrastructure, climate-related innovation and Germany’s poor digital infrastructure.
• Germany is also feeling the impact of an aging population more than other eurozone member states. The negative contribution of labor to future economic growth could be as high as -0.8ppt annually.
• We argue that adopting an investment fund focused on R&D, capital formation and education could lead to significantly higher TFP growth.
• We look at two investment scenarios (€150bn and €450bn) that could lift the country’s potential growth rate.
• While the government is unlikely to abandon its strict budgetary rules for the €450bn package, we believe a €150bn investment package is possible under the constitution - although it will still take some political will to implement it.”

Karen Jones, an analyst at Commerzbank, believes that EUR/GBP is still sidelined, but the correction higher has proved to be very tepid indeed and the market remains on the defensive.

• “There remains scope very near term for a move into the .8705/.8790 band (current intraday Elliott wave counts) ahead of further losses. Below .8571 we would allow for the slide to extend to the .8465 2019 low.
• We note the TD support at .8485. Initial resistance is .8786 the mid-September low. Key resistance is the 55-day ma at .8834 and the October high at .9022. While capped here a negative bias is entrenched.
• Resistance above the current October high at .9022 comes in at the .9149 September high. A rise above the next higher .9327 level would lead to the 2016 peak at .9403 to be in focus.”

The upside momentum in USD/JPY is expected to face a tough barrier at 109.75, suggested FX Strategists at UOB Group.

24-hour view: “While we held the view that “the rapid rise has room to extend higher”, the subsequent rapid and strong surge in USD that easily took out a couple of strong resistance levels came as a surprise. Upward momentum remains robust and from here, USD could move above the early August peak near 109.30. That said, a sustained rise beyond the next resistance at 109.55 is unlikely for today. Support is at 109.00 but only a move below 108.75 would indicate that the current upward pressure has eased”.

Next 1-3 weeks: “While we changed our view for USD to “trade sideways” yesterday (05 Nov, spot at 108.60), the rapid surge that quickly approaches the top of the expected range at 109.30 came as a surprise (overnight high of 109.24). The rapid rise and the subsequent strong daily closing at 109.15 (the +0.54% gain is the largest 1-day advance in 1-1/2 months) suggest that a move above the August peak of 109.30 would not be surprising. However, there is a solid resistance at 109.75 and at this stage, the prospect a rise above this level within the next couple of weeks is not high. All in, USD is expected to trade with a firm footing from here as long as 108.45 (‘strong support’ level) is intact”.

Euro zone regulators should consider forcing banks to build bigger capital buffers as protection against an even bigger downturn that could lead to a credit crunch, European Central Bank Vice President Luis de Guindos said.

Having amassed capital over the last decade, the currency bloc's biggest banks are now well positioned to weather a downturn but most still lack an extra capital buffer that could be freed up during periods of stress.

"Even if we consider the level of capital to be appropriate, there still seems to be scope to have a higher share of capital in the form of releasable buffers," de Guindos told.

The problem is that in a downturn, banks hold up their capital ratios by deleveraging and disposing of assets, restricting credit to the real economy and aggravating any contraction. Letting capital ratios fall is hardly an option, however, as this would restrict lenders' ability to pay dividends, a move frowned upon by shareholders.

De Guindos also warned that the global economic outlook was deteriorating and uncertainty was on the rise, creating a difficult environment for a bank sector that is already struggling with weak profitability, high costs and excessive competition.

According to estimates from Eurostat, in September 2019 compared with August 2019, the seasonally adjusted volume of retail trade increased by 0.1% in the euro area (EA19) and by 0.2% in the EU28. In August 2019, the retail trade volume increased by 0.6% in the euro area and by 0.3% in the EU28. In September 2019 compared with September 2018, the calendar adjusted retail sales index increased by 3.1% in the euro area and by 3.2% in the EU28.

In the euro area in September 2019, compared with August 2019, the volume of retail trade increased by 0.4% for automotive fuels and by 0.1% for non-food products while food, drinks and tobacco fell by 0.4%. In the EU28, the retail trade volume increased by 0.3% for automotive fuels and by 0.1% for non-food products while food, drinks and tobacco fell by 0.1%.

In the euro area in September 2019, compared with September 2018, the volume of retail trade increased by 4.6% for non-food products, by 1.6% for automotive fuel and by 1.3% for food, drinks and tobacco. In the EU28, the retail trade volume increased by 4.6% for non-food products, by 2.0% for automotive fuel, and by 1.7% for food, drinks and tobacco.

Mitul Kotecha, senior emerging markets strategist at TD Securities, points out that portfolio inflows to Asia have surged over recent weeks in tune with the rally in equity markets and local currency bonds.

“Asian currencies have benefited from stronger inflows. A number of factors have supported the surge in flows and we see little risk of a turnaround in the coming weeks given that some key risks to the region have been sidelined or at least diminished for now. India has led the way in terms of equity inflows followed by Taiwan while Korea and Indonesia have registered strong bond inflows. We find that hedge funds have had a limited participation in the rally in EM Asian assets and see scope for some capitulation as these investors increase their allocations to Asian equities and bonds.”

According to the report from IHS Markit, the Eurozone PMI Composite Output Index improved during October, but remained close to the crucial 50.0 no-change mark. The index recorded 50.6, up from 50.1 in September and slightly better than the earlier flash reading of 50.2, but still signalling a rate of growth that was amongst the weakest seen in the past sixand-a-half years. There remained a divergence between the manufacturing and service sectors during October. Whereas manufacturing firms recorded a ninth successive month of declining production, service sector companies indicated further growth, albeit at the second-weakest rate since January. At the national level, by registering a second successive monthly deterioration in private sector output, Germany remained the only country inside contraction territory during October.

Overall growth of the euro area private sector occurred in spite of a second successive monthly decline in new work. Weakness was centred on the manufacturing economy, where another marked fall in new orders was recorded, whilst there was also a sharp reduction in foreign demand. Overall exports were down for a thirteenth successive month, with the rate of decline amongst the sharpest in the series history.

The Eurozone PMI Services Business Activity Index indicated a slightly faster rate of growth during October. However, at 52.2, compared to September’s 51.6, the index nonetheless posted the second-lowest reading since January. A marginal increase in new business volumes was signalled during October, with growth only slightly up on September’s eight-month low. Export trade remained especially weak, declining for a fourteenth successive month.

The so-called phase one trade deal that the U.S. and China are expected to sign won’t solve all the problems the global economy faces right now, former U.S. Treasury Secretary Larry Summers said.

U.S. President Donald Trump said both countries were looking for a location to sign the partial deal, which could take place this month. That development has fueled recent optimism in financial markets.

“I’m all for it,” Summers told CNBC from the Credit Suisse China Investment Conference in Shenzhen, China.

“But I think we’ll be kidding ourselves if we thought we were one signing ceremony away from some kind of economic nirvana. There are deeper and larger issues that are holding back rapid global expansion,” he added.

Summers said even if both sides sign the partial deal as planned, “there will still be large tensions and uncertainties” between the two countries — which would weigh on the global economy.

In the coming years, structural changes within the Chinese economy means the country would contribute less to global growth than it did before, according to Summers.

The Bank of Thailand cut its benchmark interest rate for the second time in three months and said it will ease rules on outflows to curb the currency’s gains.

Five of the seven Monetary Policy Committee members voted to cut the key rate by a quarter-percentage point to 1.25%, the central bank said in a statement.

Officials told reporters in Bangkok that the central bank is worried about the strength of the baht, which may continue to weigh on the economy. The bank will ease rules on outflows and consider further steps to rein in the currency, they said.

Thai authorities are stepping up monetary and fiscal support to spur an economy that’s on course for its weakest growth in five years in 2019. The baht has gained more than 8% against the dollar in the past year, the best performer in emerging markets, curbing exports and tourism in the trade-reliant nation.

The central bank has already taken measures to curb short-term inflows to rein in the currency, and said it’s planning to ease rules on capital outflows.

According to Karen Jones, analyst at Commerzbank, USD/CHF is seeing a bounce from the .9844/41 September and October lows, but these remain exposed.

“A negative bias is maintained while capped by the downtrend at .9985. Failure at the next lower .9799 September low would push key support at .9716/.9659 to the fore. It is the location of the January, June, mid- and late August lows. Below here sits the .9659 August low and the September 2018 low at .9543. The market is negative. Above the mid-June high at 1.0014/28 on a closing basis targets the 1.0128 mid November 2018 high and the 1.0240 April high.”

Bank of America Merrill Lynch Global Research discusses its expectations for this week's BoE policy meeting. 

"We expect few fireworks from the Bank of England (BoE) at this week's meeting. The contours of the BoE's forecasts should remain unchanged; below target inflation in the first half of the forecast rising above target in 2022 and a strong pick-up in growth on falling uncertainty and fiscal stimulus. This would signal a bias to hike in the medium term but also a distinct lack of urgency. They can wait and see. The BoE rate decision is likely to prove a distraction for GBP as the focus remains on 12 Dec. In a recent report, we outlined the impact of GBP in various scenarios. Our base case provides the most material upside for GBP in the near term, so in the run-up to 12 Dec, opinion polls will be more important than monetary policy or data. Initial polling suggests an outcome consistent with our base case and GBP has consequently been well supported. But we are cognisant of complacency risk as in 2017 and flag that polling could easily shift and impact GBP," BofAML adds.

The People’s Bank of China’s (PBOC) set its daily midpoint fix for the yuan on Wednesday at 7.0080 per dollar — its strongest since August 8.

That comes a day after the currency traded below the historical support level of 7 against the greenback for the first time since that same month.

″(The yuan fix) was much stronger than what we were expecting. It was much stronger versus market expectations,” Divya Devesh, Asia foreign exchange strategist at Standard Chartered Bank, told CNBC.

Recent reports suggest positive developments have been made on the trade front as the U.S. and China work toward a deal. Beijing has reportedly asked Washington to remove tariffs slapped on Chinese exports in September, as part of a so-called phase one trade deal.

“The probability of a September (tariff) rollback has obviously increased in the last 48 hours,” Devesh said. “I think today’s dollar-China fix at 9:15 (a.m. HK/SIN) was a very important signal.”

Every morning, the Chinese central bank’s sets a midpoint for the yuan on the mainland. Also known as the onshore yuan, the currency is allowed to trade within a narrow band of 2% above or below the day’s midpoint rate.

According to the provisional report from Federal Statistical Office (Destatis), price-adjusted new orders in manufacturing had increased in September 2019 a seasonally and calendar adjusted 1.3% on the previous month. Economists had expected a 0.1% increase. For August 2019, revision of the preliminary outcome resulted in a decrease of 0.4% compared with July 2019 (provisional: -0.6%). Price-adjusted new orders without major orders in manufacturing had increased in September 2019 a seasonally and calendar adjusted 1.5% on the previous month.

Domestic orders increased by 1.6% and foreign orders rose 1.1% in September 2019 on the previous month. New orders from the euro area were down 1.8%, new orders from other countries increased 3.0% compared to August 2019.

In September 2019 the manufacturers of intermediate goods saw new orders decrease by 1.5% compared with August 2019. The manufacturers of capital goods showed increases of 3.1% on the previous month. For consumer goods, a rise in new orders of 0.8% was recorded.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1202 (2840)

$1.1151 (3302)

$1.1118 (3554)

Price at time of writing this review: $1.1076

Support levels (open interest**, contracts):

$1.1044 (2383)

$1.0998 (3930)

$1.0949 (3351)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date November, 8 is 76512 contracts (according to data from November, 5) with the maximum number of contracts with strike price $1,1000 (3930);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3007 (1503)

$1.2966 (1538)

$1.2935 (1015)

Price at time of writing this review: $1.2884

Support levels (open interest**, contracts):

$1.2833 (334)

$1.2792 (776)

$1.2746 (601)

Comments:

- Overall open interest on the CALL options with the expiration date November, 8 is 26060 contracts, with the maximum number of contracts with strike price $1,3400 (3252);

- Overall open interest on the PUT options with the expiration date November, 8 is 29842 contracts, with the maximum number of contracts with strike price $1,2100 (3166);

- The ratio of PUT/CALL was 1.15 versus 1.14 from the previous trading day according to data from November, 5

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.