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The main US stock indices fell slightly, as the increasing political uncertainty in the United States outweighed optimism about trade.

The U.S. House Intelligence Committee released the text of an unnamed employee complaint alleging that President Trump used his power to “ask for foreign intervention” in the 2020 presidential election. The document refers to Trump's telephone conversation with President of Ukraine Zelensky on July 25. It was released the day after the publication of the transcript of this conversation, which showed that the head of the White House encouraged the Ukrainian president to “study” the situation with former US vice president Biden and his son Hunter.

China's Commerce Department said earlier today that it maintains close ties with the United States and is gearing up for success in the October trade talks. According to Ministry Spokesman Gao Feng, Chinese firms made significant purchases of soybeans and pork in the United States, adding that these purchases are exempt from tariffs. Inter-country trade negotiators are expected to meet in Washington in about two weeks to determine whether they can begin to plan ways out of their trade war or are eager for new and higher reciprocal tariffs.

Investors also analyzed several important macroeconomic reports. Thus, the report of the Ministry of Commerce showed that in the second quarter, gross domestic product grew by 2.0% (unchanged from preliminary estimates), since the highest consumer spending in 4-1 / 2 years offset the weak export and slower rate of investment in stocks. The economy grew by 3.1% in January-March. In the first half of the year, GDP grew by 2.6%.

Meanwhile, a report published by the National Association of Realtors (NAR) showed that the pending home sales index rose 1.6% in August, to 107.3, after falling 2.5% in June. Economists had expected the index to rise by 0.3%.

Most of the DOW components completed trading in the red (18 of 30). Outsider were shares of UnitedHealth Group Inc. (UNH; -2.99%). The biggest gainers were NIKE, Inc. (NKE; + 1.53%).

Most S&P sectors recorded a decline. The largest decline was shown by the services sector (-0.8%). The utilities sector grew the most (+ 0.4%).

At the time of closing:

Index

Dow 26,891.12  -79.59 -0.30%

S&P 500 2,977.62 -7.25 -0.24%

Nasdaq 100 8,030.66 -46.72 -0.58%

Tim Riddell, an analyst at Westpac, says that UK’s politics are increasingly factious and fractious as Parliament returns after its suspension.

• “Uncertainty is likely to increase, weighing on an already volatile GBP. Parliament may have passed into law the requirement of the PM to request an extension to the current 31st Oct Brexit deadline, but if no form of exit deal is found in the next few weeks, the risk that EU may not agree to such an extension is material. Therefore failure to find any form of agreement could still trigger the legal default of a no-deal Brexit.
• In the hope of avoiding an unintended no-deal Brexit, opposition parties are unwilling to table an early vote of “no confidence” in the Johnson gov’t and so trigger an election.
• Polls are unclear as to whether a majority gov’t may result from an election and so Brexit uncertainty could be extended rather than reduced. The Labour opposition’s insistence of being non-committal on Brexit may reduce its likelihood of success at the polls, but it unveiled a host of market unsettling measures at its conference.
• Continued uncertainty, no-deal risk and concerns over Labour policies should cap GBP and could retest recent lows unless some form of agreement can be found.”

Analysts at UOB Group in its Quarterly Global Outlook believe that China's central bank (PBoC) will ease further its monetary conditions in the next months.

• “The PBoC announced its third cut to banks' reserve requirement ratio (RRR) this year in Sep, encompassing both broad and targeted cuts. Further out, we believe there is room for one more RRR cut in 4Q19.
• The PBoC has also revamped the Loan Prime Rate (LPR) which will replace the 1Y Lending Rate to price new loans going forward. The LPR which is pegged to the 1Y Medium-term Lending Facility (MLF) is expected to fall with PBoC potentially looking at directly lowering of borrowing costs through an easing in the MLF rate.
• We see the likelihood for 1Y MLF to be cut by 25 bps and by more should the US-China trade tensions escalate further. From 4.25% (as of 20 August), we expect the LPR fixing to move lower to 3.90% by end-4Q19 and to 3.65% by end-1Q20”.

The National Association of Realtors (NAR) announced on Thursday its seasonally adjusted pending home sales index (PHSI) rose 1.6 percent m-o-m to 107.3 in August, after a 2.5 percent m-o-m drop in July.

Economists had expected pending home sales to increase 0.9 percent m-o-m in August.

On y-o-y basis, the index increased 2.5 percent.

According to the report, the pending home sales grew in all four regions in m-o-m terms The PHSI in the Northeast jumped 1.4 percent m-o-m to 94.3 in August and is now 0.7 percent higher than a year ago. In the Midwest, the index went up 0.6 percent m-o-m to 101.7, 0.2 percent higher than August 2018. Pending home sales in the South climbed 1.4 percent m-o-m to an index of 124.4, a 1.8 percent advance from last August. The index in the West surged 3.1 percent m-o-m to 96.4, up 8.0 percent from a year ago. 

Rabobank's analysts note that the Democrats in the House of Representatives have decided to start impeachment proceedings against U.S. President Trump.

• “While impeachment is possible as the Democrats have a majority in the House of Representatives, conviction is unlikely as long as the Republicans in the Senate continue to support their President. In this case, the removal of President Trump from office is unlikely, neither by conviction nor by the 25th Amendment.
• What’s more, history suggests that it will be a challenge for the Democrats to complete the process of impeachment & conviction before Election Day 2020. And then there is – at least as things stand now – virtually no chance of conviction. Consequently, it is unlikely to affect who is on the Republican ticket for the presidential elections in 2020.
• However, it will set the tone for the election campaign. In fact, it could even backfire on the Democrats as it may energize Trump voters to go to the polls. Meanwhile, the impeachment theme may overshadow any political message that the Democrats might want to sell to the electorate.
• What’s more, Democratic candidate Joe Biden may not come out of this process unscathed. This would strengthen the position of the remaining leading candidates in the Democratic primaries, which are far more left-wing than Biden. While this strengthens the position of the left-wing in the Democratic Party, it may scare away centrist voters on Election Day.
• Impeachment proceedings and the related further deterioration of the US domestic political climate add to the range of factors that are creating the uncertainty for the economic outlook that the Fed is monitoring closely. What’s more, they reduce the chance of meaningful fiscal policy legislation. Therefore, a third insurance cut before the end of the year – which is already in our baseline forecast – has become more likely.
• It also makes our forecast of a recession in 2020 and the Fed cutting all the way back to zero before the end of next year more likely.”

• It reveals the Government officials concern that Trump is “using the power of his office to solicit interference from a foreign country in the 2020 U.S. election” 
• This interference includes, among other things, pressuring a foreign country to investigate one of the President’s main domestic political rivals
• The President’s personal lawyer, Mr. Rudolph W. Giuliani, is a central figure in this effort
• Attorney General Barr appears to be involved as well
  

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The data from the Labor Department revealed on Thursday the number of applications for unemployment benefits increased slightly last week, pointing sustained labor market strength.

According to the report, the initial claims for unemployment benefits rose by 3,000 to a seasonally adjusted 213,000 for the week ended September 21.

Economists had expected 212,000 new claims last week.

Claims for the prior week were revised upwardly to 210,000 from the initial estimate of 208,000.

Meanwhile, the four-week moving average of claims fell by 750 to 212,000 last week.

Tesla (TSLA) initiated with a Buy at China Renaissance; target $324

Alcoa (AA) target lowered to $27 from $34 at B. Riley FBR

The Commerce Department reported on Thursday that its the "third" estimate revealed the U.S. gross domestic product (GDP) grew at a 2.0 percent annual rate in the second quarter of 2019, unchanged from the "second" estimate issued last month.

Economists had expected the growth rate to be unrevised at 2.0 percent.

In the first quarter, the economy expanded by 3.1 percent.

According to the report, downward revisions to personal consumption expenditures (PCE) and nonresidential fixed investment were primarily offset by upward revisions to state and local government spending and exports. Meanwhile, imports, which are a subtraction in the calculation of GDP, were revised down.

The increase in real GDP in the second quarter reflected positive contributions from PCE, federal government spending, and state and local government spending that were partly offset by negative contributions from private inventory investment, exports, nonresidential fixed investment, and residential fixed investment.

At the same time, the deceleration in real GDP in the second quarter primarily reflected downturns in inventory investment, exports, and nonresidential fixed investment. These downturns, however. were partly offset by accelerations in PCE and federal government spending.

• "In the longer term, an extended period of trading on World Trade Organization terms would act as a drag on corporate performance due to the impact of tariffs and non-tariff barriers."
• "The greatest pressure would be felt by small, unrated companies due to their lack of diversification, limited preparedness, and fewer options to adapt."
• "On a sector level, we view manufacturers with complex supply chains, such as carmakers and aerospace companies, as particularly exposed to near-term disruption. Retailers, particularly those with significant imports from the EU, and airlines would also be among those facing pressure from a combination of a weaker pound, lower consumer confidence, falling demand and border disruptions."
• "The current end-October exit date also creates fresh challenges. Auto manufacturers that shut down for annual maintenance in April 2019 (around the previous exit date) will not be able to easily repeat this planning, exposing them to greater risks of supply-chain disruption."

The Chinese Yuan is seen gathering extra downside traction in the near term, suggested analysts at UOB Group in its Quarterly Global Outlook.

• “Our weaker outlook of China’s economy also supports our view of a weaker CNY going forth.
• Overall, against the CNY, we believe USD/CNY will trade in the new normal of above 7.00 going forth.
• Our new point forecasts for USD/CNY are 7.20 at 4Q19, 7.25 at 1Q20 and 7.30 for both 2Q and 3Q20”.

Imre Speizer, an analyst at Westpac, notes the NZD/USD remains in a multi-month downtrend and targets 0.6730 next week.

• “Multi-month, we remain bearish, expecting a fall to the 0.6100 area. That said, NZD positioning is getting stretched. The CFTC measure shows speculative types have become extremely short, which means the chances of an upward correction have risen.
• For now, though, NZ’s lackluster fundamentals, which will be updated in a forward-looking sense by the surveys next week, should maintain downward pressure on the NZD.
• Yesterday’s RBNZ OCR Review did not deliver any signals regarding the November meeting. Key swing factors ahead of that decision will be the Q3 jobs data and Q3 inflation expectations.”

Analysts at TD Securities are expecting the final release of U.S. Q2 GDP data to bring no major surprises, with the market expecting no changes to the second update that stood at 2.0% q/q saar.

• “Core PCE inflation is expected to have remained unchanged in Q2 at 1.7% q/q.
• Separately, the Kansas City Fed's manufacturing survey will add the latest piece to the puzzle for activities in the sector, with the consensus looking for a minor uptick to -4 from -6 before. Lastly, pending homes sales are expected to rebound on a monthly basis at 1.0% for August, up from -2.5% before.”

Sean Callow, an analyst at Westpac, suggests that further downside seems likely in the week ahead for the AUD, if only because markets are not fully priced for the RBA to cut the cash rate to 0.75% on Tuesday.

• “Westpac has been calling for an Oct rate cut since late July and the focus on slack in the labour market in Governor Lowe’s speech leaves us quite comfortable with that call.
• Along with the rate cut, we expect the statement to leave the door open for further easing. Our base case is for a Feb 2020 cut but rates markets are likely to nudge up the risk of a Dec move.
• A firm US dollar should be another headwind near term, backed by decent US data and hopeful Fed officials. In contrast, Asian export and activity data is worrying, dovetailing with e.g. spot iron ore’s fall below $90/tonne.
• Limiting the downside however is the underlying market hope that the US and China will be able to reach perhaps an interim agreement mid-Oct, a la US-Japan. Risks to AUD/USD 0.6700 and below on the week but not necessarily on a daily close basis.”

• We know the challenges in Brexit talks which we need to address
• That means hard and detailed negotiations with the EU
• Brexit minister Barclay will go to Brussels tomorrow with EU's Barnie
• We will put further proposed solutions in Brexit talks when we are ready to do so.

Bert Colijn, a Senior Eurozone Economist at ING, notes that the broad money supply (M3) increased from 5.1% year-on-year in July to 5.7% YoY in August and that improvement was mainly driven by an acceleration in the narrow money supply M1. 

• "The increase from 7.8% to 8.4% YoY is particularly noteworthy as real money supply is considered to be one of the best leading indicators for the eurozone economy. That said, the lag time is considerable, although this does provide a somewhat rosier view on the economy a few quarters ahead.
• At the same time, private sector borrowing also improved. This is more of a coincident indicator, giving a good view of the current economic situation, and even though uncertainty has continued to be at very high levels, borrowing did continue to grow at a modest pace. While the credit impulse is not necessarily enough to boost GDP growth at the moment, it does show that loose financial conditions have helped to realize a small acceleration in lending growth over the summer.
• The months ahead will continue to be uncertain with economic risks to the downside prevailing, but the European Central Bank will likely take this data as confirmation that expansionary policy is having some positive impact at a time of slowing growth."

China and the United States are still discussing details about upcoming trade talks in October, making preparations to ensure “positive progress” is made during the negotiations, the Chinese commerce ministry.

The countries’ trade negotiators are expected to meet in Washington in about two weeks to determine if they can start to chart a path out of their bruising trade war or are headed for new and higher tariffs on each others’ goods.

U.S. President Donald Trump said on Wednesday a deal to end a nearly 15-month trade war with China could happen sooner than people think and that the Chinese were making big agricultural purchases from the United States, including of beef and pork.

On Thursday, Chinese commerce ministry spokesman Gao Feng also said Chinese firms have made significant purchases of U.S. soybeans and pork, adding that those purchases were exempt from tariffs.

China and the United States complement each other in agriculture and there is ample room for further “cooperation” as Chinese demand for quality agricultural products is high, Gao said.

“We hope both sides can work together and take tangible actions to create favorable conditions for such cooperation,” he said.

Record investments of $50 billion have turned 2019 into a banner year for liquefied natural gas (LNG), with Canada and the United States being the main drivers, the chief of the International Energy Agency (IEA) said.

The industrial sector is Asia's biggest driver of LNG growth, with China expected to overtake Japan as the world's top importer of the fuel in five years, said Fatih Birol, the agency's executive director.

"This year, 2019 already broke the highest amount of (final investment decisions) for the first time ever, $50 billion," he told the annual LNG Producer-Consumer conference in Tokyo.

More than 170 billion cubic metres (bcm) of natural gas liquefaction capacity is due to take a final investment decision this year, a record far surpassing the previous high in 2005 of 70 bcm, according to the IEA.

Richard Franulovich, head of FX strategy at Westpac, suggests that DXY appears poised for a breakout to new highs near term while Trump impeachment being an overstated risk.

“Trump impeachment is an overstated risk: the procedural steps to a resolution in the House are long and then there is the requirement for the Senate to vote by an almost insurmountable 2/3 majority. The prospect of a more gridlocked Congress is moot - the upcoming election year was never going to see any signature legislation. The hurdle for another Fed insurance cut 30 Oct is understandably high too. Even reliable 2019 voting dove Chicago President Evans said he doesn’t see a need for further cuts, while a relatively encouraging round of data of late will cement the FOMC’s central tendency for continued above trend growth. That USD positive scenario and a steady Fed hand 30 Oct could admittedly shift quickly if exogenous risks materialise; notably Brexit and if ministerial US-China trade talks slated for 10-11 Oct produce nothing tangible. If so, Trump will forge ahead with a lifting of the 25% tariff on $250bn in China imports to 30%.”

India’s economy may not be as big as China’s, but it could still be a good partner for the U.S. amid a protracted trade war, one global political analyst told CNBC.

“India is still a very large country. It has a relatively robust economy, (it has) a lot of potential down the road. It is not a true counterbalance to China in the Indian Ocean basin but it is certainly a country that can be a strategic partner with the United States in that region,” said Rodger Baker, senior vice president of strategic analysis at geopolitical intelligence firm Stratfor.

On Sunday, U.S. President Trump and Indian Prime Minister Modi appeared together at a Texas rally, increasing hopes for a trade deal between the world’s largest and sixth largest economies. 

Baker said a closer relationship with New Delhi could potentially have many upsides for the U.S. and was something Washington had been interested in before the Trump administration.

The biggest winners in the the “constant trade competition between the United States and China” are countries like “Vietnam, Indonesia, parts of Southeast Asia,” said Baker. But looking ahead, he said, India could benefit from the situation too.

In the latest client note, analysts at ING note that despite the recent surge in gold prices, the investment demand for the yellow metal remains intact amid trade war and Mid-East tensions.

“No letup in gold investment demand despite higher prices. Investors remain jittery about rising geopolitical and economic uncertainty, and continue to turn towards safe haven assets such as gold. ETF holdings have increased …  total known holdings increasing to a fresh six-year high. Recent tension in the Middle East has only increased the attractiveness of gold for investors. Moving forward, investors will be watching the US/China trade talks scheduled for early October for further clues on economic prospects and the direction of monetary policy. “

According to the report from European Central Bank, the annual growth rate of the broad monetary aggregate M3 increased to 5.7% in August 2019 from 5.1% in July, averaging 5.1% in the three months up to August. Economists had expected a 5.1% increase.

The annual growth rate of the narrower aggregate M1, which comprises currency in circulation and overnight deposits, increased to 8.4% in August from 7.8% in July. The annual growth rate of short-term deposits other than overnight deposits (M2-M1) increased to 1.0% in August from 0.1% in July. The annual growth rate of marketable instruments (M3-M2) was -2.9% in August, compared with -1.6% in July.

Annual growth rate of adjusted loans to households stood at 3.4% in August, unchanged from previous month

Annual growth rate of adjusted loans to non-financial corporations increased to 4.3% in August from 4.0% in July

Deutsche Bank analysts note that the US President Trump and Japanese PM Abe signed the “first stage” of an initial pact after meeting at the UNGA yesterday, with Trump saying that he expects “in the fairly near future” that the US will have “final comprehensive deals signed with Japan.”

“In terms of specifics, the trade deal will help US farmers by opening up Japan’s agricultural market as it will eliminate or reduce tariffs on $7.2bn of US food and agricultural products, helping US beef, corn, pork and other farmers. Trump also said that the deal, which also covers a $ 40bn digital trade agreement, would help reduce a “chronic” US trade deficit and both the countries’ goal is for the accord to go into force on January 1, 2020. The limited deal will also not require a vote from Congress according to Trump while Japanese PM Abe said that he received direct confirmation from President Trump that the US won’t slap tariffs on Japan’s auto exports. Markets will hope this eventually extends to European autos.”

The European Union’s Brexit negotiator Michel Barnier said on Thursday that Britain has yet to provide “legal and operational” proposals that could break the Brexit impasse.

“We are still ready to work on any new legal and operational proposal from the EU,” Barnier told reporters on arriving for talks with European lawmakers on the latest developments on Brexit. “We are still waiting for this.”

Bank of Japan Governor Haruhiko Kuroda said that he would guide monetary policy appropriately without any preset conditions in mind, while warning against heightening risks from the global economy and the Chinese-U.S. trade war.

Kuroda also said it was important for the central bank to stick patiently to its powerful monetary easing to maintain momentum towards achieving its 2% inflation target.

"Risks are skewed to the downside, mainly from overseas economies," he said.

According to Danske Bank analysts, weekly US jobless claims could prove interesting in light of the weak reading of Monday's flash PMI employment index.

“On the data front, we expect that household lending growth in Sweden remained stable at 4.9% y/y in August. Although the outlook for Riksbank action is uncertain, we expect mortgage rates to remain low. To some extent, this may have been mitigated by deteriorating labour market data. European money growth data will give the status of monetary policy transmission before the restart of ECB's QE programme. In central bank speeches, ECB's Draghi (15:30 CEST) and the Fed's Kaplan, Bullard, Clarida, Daly, Kashkari and Barkin will all speak this afternoon. USD funding market will keep a close watch on the results of Fed's repo operations. It has scheduled to roll over its overnight repo operation and increased the limit to USD100bn (from USD75bn) and conduct its second two-week term repo operation this week with a limit of USD60bn (compared to USD30bn on Tuesday).”

Bank of America Merrill Lynch Global Research discusses USD/JPY outlook and maintains a structural bearish bias

"The bar is high for the BoJ to cut the policy rate and the USD/JPY level is likely to be a key variable. We would sell USD/JPY (and vol) if it rallies on expectations for the BoJ from the current level. The likelihood of the BoJ's rate cut would increase if USD/JPY sells off to 104-105, accompanying weakness in risk assets. However, we do not think a mere 10bp rate cut would contain the pressure. We expect the market to test the BoJ in such a scenario and volatility will rise. But the combination of fiscal easing, rate cut with supplementary measures, and more purchases of foreign assets by public/semi-public institutions, may prove effective in weakening JPY," BofAML adds.

British consumer sentiment has fallen to a six-year low due to increased worries about job security and the impact trade tensions and political uncertainty will have on individuals' finances, a survey showed on Thursday.

Market research company YouGov said its monthly consumer sentiment indicator, compiled with economic consultancy Cebr, dropped to 103.4 in September from 104.0 in August, its lowest level since May 2013.

"It is clear now that the UK has shifted into a slower growth mode due to a combination of ongoing domestic political uncertainty and global economic headwinds," said Kay Neufeld, head of macroeconomics at Cebr.

Figures from pay analysis company XpertHR, also released on Thursday, showed that the average basic pay settlement at large employers remained at a 10-year high of 2.5% in the three months to the end of August, unchanged since the start of the year.

FX Strategists noted that odds for EUR/USD to break below YTD low at 1.0925 have increased.

24-hour view: “The sharp decline in EUR that hit an overnight low of 1.0936 came as a surprise (NY close at 1.0941, -0.70%). While the sudden and rapid drop appears to be running ahead of itself, the weakness is not showing sign of stabilization just yet. From here, EUR could test the year-to-date low near 1.0925 first before stabilizing. At this stage, the prospect for a break of the next support at 1.0900 is not that high. On the upside, only a move above 1.0990 (minor resistance is at 1.0970) would indicate that the current weakness has stabilized”.

Next 1-3 weeks: “We detected the weakened underlying tone in EUR on Tuesday (24 Sep, spot at 1.0995) and highlighted that EUR is likely to “edge lower” to the bottom of the expected 1.0925/1.1100 range first. While our expectation for EUR to move down was not wrong, instead of “edging lower”, EUR plunged yesterday (25 Sep) and registered the largest 1-day decline in 8 weeks (1.0941, -0.70%). Downward momentum has picked up considerably and the risk of a break of the year-to-date low of 1.0925 has increased. From here, a NY closing below 1.0925 would suggest EUR is ready to tackle the next support at 1.0870. All in, EUR is expected to stay under pressure unless it can move above the ‘strong resistance’ at 1.1010 within these few days”.

According to the report from GfK Group, German consumer sentiment continues to show a mixed picture for September. On the one hand, economic outlook and propensity to buy have seen gains, while on the other, income expectations have declined. 

For October, GfK forecasts an increase in consumer climate of 0.2 points from the previous month to 9.9 points. The index was expected to remain at 9.7.

In addition to the already familiar flashpoints such as a global economic slowdown, trade conflicts and Brexit discussions, the decision of European Central Bank (ECB) to further relax its monetary policy is having an impact on consumers in September. Propensity to buy has benefited as a result, showing a notable increase, while propensity to save saw a significant drop. Income expectations also saw a slight drop. In contrast, economic outlook saw a slight increase again.

According to consumers, the risk of a recession still cannot be eliminated. The trade conflict with the US as well as the lack of clarity as to whether there will be a no-deal Brexit are above all affecting export-driven companies and their suppliers though are certainly impacting the rest of the economy as well.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1110 (2041)

$1.1072 (872)

$1.1043 (1465)

Price at time of writing this review: $1.0958

Support levels (open interest**, contracts):

$1.0932 (3982)

$1.0891 (2208)

$1.0845 (767)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date October, 4 is 91677 contracts (according to data from September, 25) with the maximum number of contracts with strike price $1,1050 (7747);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2567 (1435)

$1.2494 (885)

$1.2442 (508)

Price at time of writing this review: $1.2364

Support levels (open interest**, contracts):

$1.2298 (765)

$1.2265 (368)

$1.2227 (924)

Comments:

- Overall open interest on the CALL options with the expiration date October, 4 is 16671 contracts, with the maximum number of contracts with strike price $1,2500 (1751);

- Overall open interest on the PUT options with the expiration date October, 4 is 18999 contracts, with the maximum number of contracts with strike price $1,1900 (1361);

- The ratio of PUT/CALL was 1.14 versus 1.10 from the previous trading day according to data from September, 25

* - 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.