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Major US stock indexes rose slightly, as the rise in shares of Boeing (BA) and Caterpillar (CAT) outweighed the fall in Texas Instruments (TXN).

Shares of Boeing (BA) jumped more than 1% after the company confirmed that it continues to expect regulators to approve the return of its 737 MAX aircraft in the fourth quarter, although most airlines removed them from the schedule before the start of 2020. This was enough to compensate for weak reporting. The aircraft manufacturer reported that in the third quarter it earned $ 1.45 per share, which was significantly lower than Wall Street's estimate of 2.12 per share. The company's revenue fell by more than 20% YoY, as analysts had predicted.

Caterpillar (CAT) reported adjusted quarterly earnings of $ 2.66 per share, which was below the analysts' average forecast of $ 2.90. The heavy equipment manufacturer's revenue also fell short of expectations, and Caterpillar cut its forecasts for the whole of 2019, citing weak demand for construction and mining equipment. However, CAT shares rose 1.23%.

Pressure on the market was provided by shares of chip maker Texas Instruments (TXN), whose value fell 7.48% after posting disappointing third quarter results and a forecast for the current quarter.

Despite the weak results of Caterpillar (CAT) and Texas Instruments (TXN), the third quarter corporate reporting season far exceeded analyst expectations. According to FactSet, of the 118 S&P 500 companies that have already reported, 81% have exceeded expectations. After the close of the trading session, quarterly reports of Ford Motor (F), Microsoft (MSFT) and Tesla (TSLA) are expected to be published.

Most DOW components recorded an increase (19 out of 30). The biggest gainers were Merck & Co., Inc. (MRK; + 1.93%). Outsiders were shares of NIKE Inc. (NKE; -3.45%).

Almost all S&P sectors completed trading in positive territory. The raw materials sector grew the most (+ 0.8%). Only the services sector decreased (-0.1%).

At the time of closing:

Dow 26,833.95 +45.85 + 0.17%

S&P 500 3,004.52 +8.53 +0.28%

Nasdaq 100 8,119.79 +15.50 +0.19%

The European Commission reported on Wednesday its flash estimate showed the consumer confidence indicator for the Eurozone decreased 1.1 points to -7.6 in October from the previous month. That marked the lowest level since December 2018.

Economists had expected the index to edge down to -6.7.

Considering the European Union (EU) as a whole, consumer sentiment dropped 0.9 points to -7.3.

Given these drops, both indicators remain on a broadly horizontal trajectory well above their respective long-term averages of -10.7 (Eurozone) and -10.0 (EU), the report said.

The U.S. Energy Information Administration (EIA) revealed on Wednesday that crude inventories fell by 1.699 million barrels in the week ended October 18. Economists had forecast a gain of 3.000 million barrels.

At the same time, gasoline stocks declined by 3.107 million barrels, while analysts had expected a drop of 2.238 million barrels. Distillate stocks reduced by 2.715 million barrels, while analysts had forecast a decrease of 2.723 million barrels.

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

U.S. crude oil imports averaged 5.9 million barrels per day last week, down by 438,000 barrels per day from the previous week.

James Knightley, the chief international economist at ING, thinks that the data flow over the past five weeks has clearly signaled a deceleration in the U.S. economic activity.

• “What started out as a manufacturing downturn resulting from weak external growth, the headwinds from a strong dollar and the uncertainty and barriers to trade caused by the US-China tariffs, is starting to spread to the services and consumer sectors.
• The ISM non-manufacturing index is heading lower, payrolls growth is slowing and retail sales fell sharply in September. With the outlook for corporate profits deteriorating and the durable goods orders report signaling a likely contraction in investment spending in both 4Q19 and 1Q20, it is difficult to see where the major positive growth drivers are right now.
• The one area that is performing well is housing, buoyed by the plunge in mortgage rates and the fact that the unemployment rate remains low. However, the durability of this strength is questionable given the apparent slowdown in hiring and wage growth.”

For the third straight day this week, the USD/JPY pair is moving sideways in a tight range near the 108.50 mark and is having a difficult time setting its next short-term direction. As of writing, the pair was up 0.08% on the day at 108.56.

Earlier in the week, the upbeat market mood on the back of positive headlines surrounding the United States (US)-China trade conflict and hopes of the UK coming out of the EU with a deal before the deadline made it difficult for the safe-haven JPY to attract investors. On the other hand, the broad-based selling pressure on the Greenback didn't allow the pair to gain traction.

Although the market sentiment seems to have turned sour on revived concerns over a no-deal Brexit, the USD recovery forced the pair to remain directionless. After starting the week on a positive note, the 10-year US Treasury bond yield turned south on Tuesday and extended its slide. At the moment, the yield is down 1.6% on the day.

Reflecting the weak appetite for risky assets, Wall Street's main indexes started the day mixed with the S&P 500 and the Nasdaq Composite both posting modest losses in the early trade while the Dow Jones Industrial Average was virtually flat. 

In the meantime, the US Dollar Index was up 0.05% at 97.55. There won't be any macroeconomic data releases in the remainder of the day and the pair is likely to continue to fluctuate in its weekly range unless a significant change is witnessed in the risk perception.

FX strategists at ING note that once again, a session in the UK Parliament yields more questions than answers. 

• "MPs gave initial consent to the Brexit Withdrawal Agreement Bill (with a solid 30-vote margin), but the PM’s proposed fast-track timetable was rejected. Johnson announced he will pause legislation on the deal whilst waiting for the EU27 decision on the Article 50 extension. The result was a drop in sterling as the prospect of another delay dented investor optimism for a quick resolution and likely increased the perceived risk of snap elections.
• At this stage, many options remain on the table. Johnson would ideally like a short-extension (a couple of weeks) to keep pressure on the House, but the EU may be little inclined to take such risk and will likely deliver a longer extension (possibly until Jan 2020). Once the length of the delay is set, Johnson will decide whether to try and go straight to elections – although it’s not clear Parliament will let him do this right now. Alternatively, he could press ahead with the legislation, where the next step would be for MPs to put forward amendments.
• Looking at the FX-impact, the current situation suggests that: (a) more uncertainty is being priced back into GBP; (b) the downside for GBP still seems quite limited given that Johnson now appears to have a majority to back his deal. In turn, the pound may drop some of the recent high volatility and get stuck in a “wait-and-see”, relatively tighter band, possibly hovering around the 1.28-1.29 area vs the USD."

U.S. stock-index futures were flat on Wednesday as investors assessed earnings reports from Caterpillar (CAT) and Boeing (BA).

Global Stocks:

Analysts at TD Securities suggests that Draghi's final ECB meeting should be an uneventful celebration of his 8 years as President.

• “We expect a dovish lean, given concern about inflation expectations and softer growth trends. We don't expect any clear policy signals in our base case.
• Rates: Our base case sees some slight downward pressure on yields but we expect a muted reaction overall. Market focus turns to the implementation of the ECB's tiered deposit system (30 Oct) as well as the start of the new QE purchases (1 Nov).
• FX: Similarly, we expect EURUSD to remain tame. Most directional risks favour moderate downside as we expect Draghi to ride off on a dovish note. Market attention will soon turn to any early hints on policy preferences from incoming President Lagarde.”

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

Coca-Cola (KO) upgraded to Buy from Neutral at UBS; target raised to $63

• If EU offers Jan extension, there will need to be an election
• PM Johnson spoke to Tusk and told him he still opposes an extension
• No meeting of minds with Corbyn after meeting
• PM Johnson wants to get his deal done by Oct 31 but yesterday's vote makes no-deal more likely
• Asked if he could hold an election before Christmas, spokesman says 'yes'

The USD/CAD pair closed the day virtually unchanged near the 1.31 handle on Wednesday as rising crude oil prices allowed the commodity-related Loonie to stay resilient against the USD. In the absence of significant macroeconomic drivers, the pair is fluctuating in a narrow band near 1.31.

On Tuesday, reports claiming that the Organization of the Petroleum Exporting Countries (OPEC) and its allies were planning to discuss deeper oil output cuts amid the dismal energy demand growth outlook provided a boost to crude oil prices. The barrel of West Texas Intermediate (WTI) added 1.6% on the day and closed at $54.30 to support the CAD. Ahead of the weekly crude oil stock report of the US Energy Information Administration (EIA), the WTI is posting modest daily losses near $54.

On the other hand, the heavy selling pressure surrounding the GBP on Brexit uncertainty allowed the Greenback to find demand. The US Dollar Index snapped its five-day losing streak on Tuesday and extended its gains on Wednesday. As of writing, the index is up 0.12% on the day at 97.62.

Wholesale sales from Canada and the US monthly budget statement will be featured in the economic docket but are unlikely to receive a meaningful market reaction.

Freeport-McMoRan (FCX) reported Q3 FY 2019 earnings of $0.01 per share (versus $0.35 in Q3 FY 2018), beating analysts’ consensus estimate of $0.00.

The company’s quarterly revenues amounted to $3.308 bln (-32.6% y/y), missing analysts’ consensus estimate of $3.494 bln.

FCX fell to $9.75 (-1.81%) in pre-market trading.

Boeing (BA) reported Q3 FY 2019 earnings of $1.45 per share (versus $3.58 in Q3 FY 2018), missing analysts’ consensus estimate of $2.12.

The company’s quarterly revenues amounted to $19.980 bln (-20.5% y/y), generally in line with analysts’ consensus estimate of $20.003 bln.

The company also assumed that regulatory approval of the 737 MAX return to service begins in Q4 and that it will gradually increase the 737 production rate from 42 per month to 57 per month by late 2020.

BA rose to $340.52 (+1.04%) in pre-market trading.

Caterpillar (CAT) reported Q3 FY 2019 earnings of $2.66 per share (versus $2.86 in Q3 FY 2018), missing analysts’ consensus estimate of $2.90.

The company’s quarterly revenues amounted to $12.758 bln (-5.6% y/y), missing analysts’ consensus estimate of $13.488 bln.

The company also lowered FY 2019 EPS guidance to $10.90-11.40 from the low end of $12.06-13.06 (versus analysts’ consensus estimate of $11.65) and modestly lowered FY 2019 revenues guidance from $54.7 bln (versus analysts’ consensus estimate of $55.72 bln).

CAT rose to $134.36 (+0.50%) in pre-market trading.

Snap (SNAP) reported Q3 FY 2019 loss of $0.04 per share (versus -0$12. in Q3 FY 2018), slightly better than analysts’ consensus estimate of -$0.05.

The company’s quarterly revenues amounted to $0.446 bln (+49.9% y/y), beating analysts’ consensus estimate of $0.436 bln.

The company’s DAUs were 210 mln in Q3 FY 2019, compared to 203 mln in Q2 FY 2019 and 186 mln in Q3 FY 2018 and versus guidance for 205-207 mln.

SNAP rose to $14.39 (+2.79%) in pre-market trading.

• Will increase imports of goods such as agricultural products
• Will keep yuan exchange rate basically stable
• Will continue to stabilise foreign investment

The Mortgage Bankers Association (MBA) reported on Wednesday the mortgage application volume in the U.S. tumbled 11.9 percent in the week ended October 18, following a 0.5 percent gain in the previous week.

According to the report, refinance applications plunged 17.1 percent, while applications to purchase a home fell 3.6 percent.

Meanwhile, the average fixed 30-year mortgage rate increased to 4.02 percent from 3.92 percent.

“Interest rates continue to be volatile, with Brexit votes and ongoing trade negotiations swinging rates higher or lower on any given day.” said Mike Fratantoni, the MBA’s senior vice president and chief economist. “Borrowers with larger loans are the most sensitive to rate changes, and with rates climbing higher last week, the average size of a refinance loan application fell to its lowest level this year.”

James Smith, the developed markets economist at ING, notes that things are moving fast, but conventional wisdom suggests the best election strategy would be for the UK to have left the EU before voters head to the polls. 

"That favours option two - where the government reluctantly accepts the delay and presses ahead with the legislation - and this is currently what we narrowly think is more likely.

But then again, it's worth remembering that the Conservative's whole election campaign will rely on Brexit being front-and-centre in the electorate's minds when they cast their vote. Counterintuitively if a Brexit deal is ratified, but an election takes place with a lag (say in February or March next year), that might just give the opposition the space to reframe the debate away from Brexit, back to the domestic agenda (particularly economic issues) where the Conservatives are arguably more vulnerable. 

The benefit of going to an election now is that is would be harder for the election narrative to be about much other than Brexit - even if the government has failed to meet its October 31 "do or die" deadline.

Whatever the government decides, these arguments will be front-and-centre as it tries to maximise its chances at the next election."

Nathan Janzen, the senior economist at the Royal Bank of Canada (RBC), notes that Canada's business sentiment somewhat unexpectedly improved in the Bank of Canada’s (BoC)) autumn Business Outlook Survey, which was released on Tuesday.

• “Businesses did cite, as expected, concerns about the US industrial sector amid escalating US-China trade tensions. Indeed, some firms now reportedly expect a “small US recession” over the next year. But foreign demand appears to be holding up, to date.”

Analysts at TD Securities suggest in a quiet week for the data calendar, markets will be watching US durable goods alongside the ECB rate decision.

• “Unfortunately, we don't expect many fireworks from the ECB at Draghi's final meeting, but it is still likely to be a dovish one with growth and inflation disappointing. A quiet data calendar may keep the focus on Brexit, as we edge closer to October 31st.
• For precious metals, a quiet week could argue for some downside in gold as the breadth of technical indicators pointing long edges off the highs and as momentum signals wane.
• For base metal and energy markets, the Markit manufacturing data in Europe and the US will likely be the main economic drivers. Indeed, given the global manufacturing is in recession, along with the recent contraction in the US ISM data, further weakness in manufacturing data will likely keep markets on the defensive as weak data continues to hold a firm grip on-demand expectations in the mind of commodity investors. But, aside from the data, any additional updates on the "Phase One" trade deal could still have an impact on the margin.”

NAB Research discusses AUD/USD technical outlook and flags a scope for further upside over the coming weeks on a confirmation with a break above 0.6895 in the next week or two.

"The triple bottom at 0.6670/90 is typical of a MT bottom. The October low was the lowest of the 3 and coincided with bullish MT momentum failures. When the weekly RSI breaks above its 2018/2019 downtrend a MT uptrend bias will be confirmed. A break of the previous high at 0.6895 will renew a MT uptrend structure (higher low / higher high) and confirm a sustainable MT uptrend. We anticipate price breaking above 0.6895 in the coming one to two weeks. When confirmed by an RSI breakout we will have comprehensive confirmation of a MT uptrend and initially target a 38.2% retracement of the 2018/2019 downtrend to 0.7230," NAB adds. 

Britain still faces significant uncertainties about Brexit which will drag on the country's economy for some time with negative implications for borrowers, ratings agency Moody's said.

A vote in parliament on Tuesday in favour of the Brexit deal struck by Prime Minister Boris Johnson showed the likelihood of Britain leaving the EU with a deal was higher than it had been for some time, said Colin Ellis, Moody's managing director for credit strategy.

"That said, significant uncertainties remain around the timing and eventual outcome of Brexit, which is likely going to weigh on spending, investment and hiring decisions in the UK for some time, a clear credit negative," he added in a statement.

James Smith, developed markets economist at ING, suggests that with the October 31 deadline no longer likely to be met, the EU will now almost certainly go ahead and authorise an extension to the Article 50 period.

“While France has previously voiced doubts over granting more time, most believe that President Macron is unlikely to ultimately block another extension. Exactly what form this will take is still uncertain, but most believe Brussels could go for another so-called 'flextension'. The latest reports suggest this could set a new Brexit date in January or February 2020, but crucially allow that deadline to be brought forward if a deal is ratified by the UK Parliament. While PM Johnson has indicated he wouldn't accept a 3 or 4-month extension, the terms of the 'Benn Bill' mean he has little choice but to accept unless Parliament says otherwise.”

U.S. investment bank JPMorgan said on Wednesday that if the European Union offered Prime Minister Boris Johnson a short Brexit extension then he would probably succeed in passing his Withdrawal Agreement Bill.

“It is easier to see that unanimity being established quickly around simply agreeing to the UK’s request. But we are on the look-out for headlines suggesting France (and Barnier) think a shorter extension should be offered,” the bank said.

“If the Council chooses to meet to decide a response to the UK request, we would expect their arguments to carry the day. And if offered a short extension, we would expect PM Johnson to return to his attempt to pass the WAB, and probably succeed in doing so.”

The German cabinet on Wednesday nominated university professor Isabel Schnabel to the European Central Bank's executive board, two government sources told Reuters, giving Germany an expert voice on the bank's top decision-making body.

The decision was expected after a source said on Tuesday Schnabel would replace Sabine Lautenschlaeger, another German, who resigned from the ECB board last month after having unsuccessfully opposed more ECB stimulus.

Deutsche Bank analysts note that for the US economy, impeachment proceedings still remain in focus.

“In terms of impeachment proceedings at the US Congress, Bloomberg reported overnight that William Taylor, a career bureaucrat who took charge of the US embassy in Ukraine in June, provided House investigators yesterday a meticulously detailed 15-page statement, chronicling an “irregular policy channel” with Kyiv, in which Trump associates circumvented traditional diplomatic paths to pressure the country’s new president to investigate White House political rivals. The report further added that the US envoy testified that a senior diplomat told him in early September that President Donald Trump made U.S. security aid to Ukraine entirely dependent on a public promise to investigate former Vice President Joe Biden and the 2016 election.”

French industry morale fell unexpectedly in October to its lowest level since early 2015 while confidence in the service sector held firm, a monthly survey showed on Wednesday.

The INSEE said that its overall index of business confidence fell marginally to 105 points from 106 in September, comfortably above the long-term average of 100. However, that masked diverging trends in the sub-sectors with the index for industry dropping to 99 from 102 in September, hitting the lowest level since March 2015. It also fell markedly short of expectations for an average reading of 102.

Meanwhile, the index in the service sector, which is much less exposed than industry to the vagaries of international trade, was steady at 106.

Until now France’s industrial sector has resisted a slowdown that has hit Germany industry particularly hard because it is far more dependent on exports, which have suffered in the face of global trade tensions.

According to Danske Bank analysts, focus today is still on Brexit after yesterday UK’s PM Boris Johnson paused the implementation of the Brexit deal into British law, as he lost the vote on the timetable, despite winning support for the principle of the deal.

“A majority may have supported the deal eventually but the MPs did not want to rush it through in just three days. Many questions arise on the back of yesterday's vote. How long extension will the EU grant (Donald Tusk suggests to end-January as laid out in the UK extension proposal but sources hint France's President Macron wants a shorter one)? Will there finally be support for a general election or will PM Johnson move forward with the legislative work anyway? We have a very thin calendar again today ahead of the very important central bank day tomorrow. Most interesting today is the release of the preliminary consumer confidence indicator for the euro area in October due out at 14:00 GMT.”

Dan Ivascyn, group chief investment officer at Pimco, the US bond house, singled out the ongoing trade war between the US and China as one of the biggest risks facing investors in the coming months, warning a meaningful deal to end the year-long standoff between the world’s two largest economies will be elusive.

“We think over the course of the last several weeks, the US administration has begun to appreciate the negative knock on effects to the economy,” said Ivascyn.

“We think you could see a continued attempt to reduce some of the more negative rhetoric to calm markets further, but any type of significant deal is going to be very hard to come by.”

It is expected US president Donald Trump will meet with Chinese president Xi Jinping at a summit in Chile next month to sign a “phase one” agreement, if it is finalised in time.

Ivascyn said that a “big risk to the market” would be another ratcheting up in trade frictions between the US and China.

Ivascyn also emphasised that in the lead up to the presidential election in November 2020, “uncertainty is only going to increase from a political perspective” and that the outcome could “lead to more volatility.

Ivascyn said global growth was likely to continue to weaken, putting the risk of a recession in 2020 at one-third: Pimco expects the US Federal Reserve to cut interest rates at least once more in 2019, and added that 2020 was far more uncertain. However, Ivascyn dismissed the possibility of the Fed following other central banks and experimenting with negative interest rates, even if the economy were to deteriorate.

Analysts at ING believe the Riksbank is likely to push back the date of its next rate hike on Thursday, but at the same time don't think it will do away with its hawkish bias completely, which could be a short-term SEK positive.

“The Riksbank meets this Thursday, and the key question is whether policymakers continue to signal a rate hike later this year or early next. The deterioration in the domestic dataflow suggests the timing of the next rate hike will get pushed back again. But equally, we expect the central bank to retain its hawkish bias - particularly given the ongoing weakness in the Swedish Krona (SEK). Policymakers may still signal a rate hike over the next six months or so, although given the downside to domestic data and wage growth, we aren't convinced this will ultimately materialise. We expect interest rates to remain on hold in Sweden for the foreseeable future.”

Nomura Research discusses its expectations for the ECB policy meeting on Thursday.

"After eight years, 125bp cuts in the deposit facility rate, 150bp cuts in the main refinancing rate, 200bp cuts in the marginal lending facility rate, €2.6trn of assets bought via the Asset Purchase Programme (APP), three TLTRO programmes and tiering, Mario Draghi will hold his last meeting as ECB President on 24 October. Following the announcement of a hefty package of measures in September we do not expect any major announcements to be made at October’s meeting. It will also be important to monitor any comments from the ECB on the economic outlook and the risks of a euro area recession. We think the Bank will attribute a low probability to a recession, but will also highlight that the slowdown is likely to persist for longer than expected. We think the ECB will preserve its language on the balance of risks and confirm that they are tilted to the downside," Nomura adds.

U.S. companies’ borrowing to spend on capital investments rose 18% in September from a year earlier, the Equipment Leasing and Finance Association (ELFA) said on Tuesday.

The companies signed up for $10 billion in new loans, leases and lines of credit last month, up from $8.5 billion a year earlier. Borrowings rose 9% from the previous month.

“Consumer spending continues to fuel the economy, notwithstanding signs of caution and concern raised by some over the impact of trade frictions with China, a pull-back in the U.S. manufacturing sector and recent geopolitical events in Syria, Hong Kong and elsewhere,” ELFA Chief Executive Officer Ralph Petta said in a statement.

Washington-based ELFA, which reports economic activity for the $1 trillion equipment finance sector, said credit approvals totaled 76.3%, down from 76.6% in August.

The International Monetary Fund downgraded Asia's growth outlook citing prolonged global policy uncertainty and slowing growth in China and India, and highlighted rising downside risks to growth.

According to the latest economic assessment for Asia and the Pacific, Asia will grow only 5% this year instead of 5.4% projected earlier due to weak trade and investment. This would be the slowest expansion since the global financial crisis. The projection for 2020 was trimmed to 5.1% from 5.4% forecast in April.

The IMF said Asia's near-term policy priorities should aim at preventing a sharp growth slowdown, while reducing vulnerabilities.

China is expected to expand 6.1% in 2019, and 5.8% in 2020. The outlook for 2019 was lowered from 6.3% and that for 2020 from 6.1%. The lender observed that the gradual slowdown in China reflects the ongoing rebalancing of growth drivers and the adoption of new trade measures by the US and China.

Japan's economy is projected to expand at a moderate pace of 0.9% in 2019 and 0.5% in 2020.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1214 (2927)

$1.1194 (3626)

$1.1174 (2236)

Price at time of writing this review: $1.1120

Support levels (open interest**, contracts):

$1.1071 (2337)

$1.1034 (2516)

$1.0991 (4006)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date November, 8 is 72493 contracts (according to data from October, 22) with the maximum number of contracts with strike price $1,1000 (4006);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3047 (2505)

$1.3004 (1948)

$1.2950 (1810)

Price at time of writing this review: $1.2856

Support levels (open interest**, contracts):

$1.2803 (262)

$1.2782 (103)

$1.2758 (225)

Comments:

- Overall open interest on the CALL options with the expiration date November, 8 is 33096 contracts, with the maximum number of contracts with strike price $1,3200 (3780);

- Overall open interest on the PUT options with the expiration date November, 8 is 27925 contracts, with the maximum number of contracts with strike price $1,2100 (3174);

- The ratio of PUT/CALL was 0.84 versus 0.80 from the previous trading day according to data from October, 22

* - 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.