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James Knightley, the Chief International Economist at ING, notes the recent data on U.S. durable goods orders haven't been encouraging. 

• "Headline orders were firmer than expected, rising 0.2%, but we focus on the so-called core reading - non-defence capital goods orders excluding aircraft. This obviously strips out the two big swing (volatile) components of aircraft and defence and showed a decline of 0.2% month-on-month after a flat reading of July. As the chart below shows, this points to investment in equipment falling outright in 4Q19.
• This offers further evidence that the attritional nature of US-China trade tensions is having an impact on US industry. Higher tariffs puts up costs and disrupts supply chains while hurting corporate profitability. This is now clearly hurting sentiment and making firms more reluctant to invest and hire new workers.
• We will get more news from the US manufacturing sector next Tuesday with the release of the ISM index. Here we may see a bit of temporary good news, but it shouldn't be overstated in its significance. The ISM came in well below expectations last month given the evidence from US regional manufacturing surveys. Given the August readings so far from the regions it points to a modest improvement in the ISM (see chart below). Nonetheless, given the worries over trade tensions, the weakening global growth story and the strength of the dollar, which is hurting the relative competitiveness, we remain concerned about the near-term prospects for the sector. As such we expect further interest rate cuts from the Federal Reserve despite the relative strength of the consumer sector. We look for a December rate cut with another 25bp move in 1Q20."

Nordea Markets' analysts note that a formal inquiry to impeach Donald Trump has been announced by the speaker of the house Nancy Pelosi earlier this week, after details of a call between Donald Trump and the Ukrainian president Volodymyr Zelenskiy emerged.

• “The Democrats allege that Trump has blackmailed Ukraine into investigating Sleepy Joe Biden and his son. We don’t get what all the fuss is about. First, it’s still hard to see a smoking gun. Second, if the Democrat-controlled House of Representatives moved to impeach Trump, they would still need 2/3 of the votes in the Republican-controlled Senate to ultimately convict him.
• Markets price in more than 60% probability that an impeachment process will start, but the market is not convinced that it will matter, as the betting markets also firmly expect Trump to complete his first term.
• And do the Americans at all want an impeachment process? Trump is basically as popular as ever (during his presidency), so maybe this whole impeachment show could work to Trump’s advantage, as it could enliven his base. The interesting market pattern is that what is good for Trump is good for the USD. We remain positive on haven assets (and the USD) in the short to medium term. A strong Trump during an impeachment process probably means more geopolitical noise.”

The final reading for the September Reuters/Michigan index of consumer sentiment came in at 93.2 compared to a preliminary reading of 92.0 and the August final reading of 89.8.

Economists had forecast the index to be unrevised at 92.0.

According to the report, the index of the current economic conditions increased to 108.5 from August’s final reading of 105.3.

Meanwhile, the index of consumer expectations recovered to 83.4 from August’s final reading of 79.9.

“The consumer sentiment continued to post small increases throughout September due to more favorable income trends, especially among middle-income households”, the report noted. It added, however, that “despite the high levels of confidence, consumers have also expressed rising levels of economic uncertainty. Some of these concerns are rooted in partisanship, some due to conditions in the global economy (Brexit, Iran, Saudi Arabia, China), and some are tied to domestic economic policies.”

Bill Evans, an analyst at Westpac, expects the RBA to decide to cut the cash rate by 0.25% from 1% to 0.75% in October.

• “We thought there a number of good reasons for not moving in May. In particular, the Board did not have an easing bias following its April meeting and moving to cut rates from a neutral bias would be highly unusual.
• However, given the widespread criticism the RBA received from some quarters for not moving in May it is not entirely surprising that the Governor was keen to signal an imminent move when he delivered his speech on May 21. That was supplemented by a clear easing bias in his Statement following the May Board meeting.
• In conclusion, markets were disappointed that the Governor did not give direct guidance in his speech this week along the lines of the speech in May. We assess that having now begun the easing cycle it is appropriate to return to a more opaque approach to future policy movements. However the key domestic theme was similarly emphasised in both speeches while this week’s speech bolstered the case for a cut by highlighting the global developments that are signally the need for lower rates.”

According to Danske Bank analysts, high-level trade talks remain on track for the week starting 7 October, but elevated U.S.-China tensions create difficult conditions to reach a real deal.

• “Chinese stocks and the CNY gave back gains in sign of caution ahead of the talks.
• PRC's 70-year anniversary is celebrated on 1 October. It will be a demonstration of economic achievements as well as military capabilities.”

U.S. stock-index futures rose slightly on Friday as hopes for progress in U.S.-China trade talks offset the shock of the launch of an impeachment investigation into U.S. President Donald Trump.

Global Stocks:

• Recent decision was not a dramatic policy move but a recalibration
• Important that ECB responds to significant deviation of inflation from target
• Weakness in Germany is result of concentration in manufacturing, not a reflection of broader problems

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

The U.S. Commerce Department reported on Friday that the durable goods orders rose 0.2 percent m-o-m in August, following a revised 2.0 percent m-o-m surge in July (originally a 2.1 percent m-o-m gain).

Economists had forecast a 1.0 percent m-o-m decrease.

According to the report, orders for durable goods excluding transportation increased 0.5 percent m-o-m, following a revised 0.5 percent m-o-m drop in July (originally a 0.4 percent m-o-m decline) and exceeding market expectations of 0.2 percent m-o-m gain.

Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, fell 0.2 percent m-o-m in August, after being unchanged m-o-m in July (revised from +0.2 percent m-o-m). Economists had called for no change in core capital goods orders in August.

Shipments of these core capital goods rose 0.4 percent m-o-m in August after an unrevised 0.6 percent decline m-o-m in the prior month.

Lyft (LYFT) initiated with Outperform at Wells Fargo; target $60

The Commerce Department reported on Friday that consumer spending in the U.S. edged up 0.1 percent m-o-m in August, following a revised 0.5 percent m-o-m gain in July (originally a 0.6 percent m-o-m rise). Economists had forecast the reading to show a 0.3 percent m-o-m growth.

Meanwhile, consumer income rose 0.4 percent m-o-m in August, following an unrevised 0.1 percent m-o-m increase in the previous month. Economists had forecast a 0.4 percent m-o-m advance.

The August increase in personal income primarily reflected gains in wages and salaries, nonfarm proprietors’ income, and personal current transfer receipts that were partially offset by a decrease in personal interest income.

The personal consumption expenditures (PCE) price index, excluding the volatile categories of food and energy, which is the Fed's preferred inflation measure, went up 0.1 percent m-o-m in August after a 0.2 percent m-o-m increase in the prior month. Economists had projected the index would increase 0.2 percent m-o-m.

In the 12 months through August, the core PCE increased 1.8 percent, following a revised 1.7 percent growth in the 12 months through July (originally an advance of 1.6 percent). Economists had forecast a gain of 1.8 percent y-o-y.

Analysts at TD Securities are expecting China's official manufacturing PMI to rise to 49.7 in September from 49.5 in August, while Caixin manufacturing PMI to slip slightly to 50.3, from 50.4 in August.

• “Monetary aggregates showed some recovery last month as China's credit taps opened a little more while hopes of a US/China trade deal have grown. Manufacturers will also take some solace from CNY weakness, with the currency having weakened anew over recent weeks. While there is little chance of a move back into expansion territory (for the official PMI) these factors are likely to at least prevent a further deterioration in confidence.”

• China current account likely to maintain small surplus in 2019

Micron (MU) reported Q4 FY 2019 earnings of $0.56 per share (versus $3.53 in Q4 FY 2018), beating analysts’ consensus estimate of $0.48.

The company’s quarterly revenues amounted to $4.870 bln (-42.3% y/y), beating analysts’ consensus estimate of $4.558 bln.

The company also issued guidance for Q1 FY 2020, projecting EPS of $0.39-0.53 (versus analysts’ consensus estimate of $0.49) and revenues of $4.8-5.2 bln (versus analysts’ consensus estimate of $4.78 bln).

MU fell to $45.90 (-5.56%) in pre-market trading.

Analysts at TD Securities are expecting the U.S. durable goods orders to post a declined of 1.0% m/m for August on the back of a sharp contraction in the volatile nondefense aircraft segment.

• “We anticipate orders in the ex-transportation segment to have advanced 0.3% m/m, rebounding from a 0.4% decline in the prior month. We are also expecting capex orders to have advanced at 0.2% m/m for a second consecutive month in August.”

• Not exploiting division in the UK
• We want to get a deal, we are working for a deal, we will leave the EU on October 31
• Too much abuse of lawmakers
• Can use words like surrender to describe Brexit delay act
• Will obey the law when asked if looking for ways to get around Benn Act

Analysts at TD Securities are expecting the growth in the U.S. personal spending to have slowed to a still firm 0.3% m/m in August, down from 0.6% in July.

• “This would keep real spending growth at a still strong 3.9% pace so far in Q3. Furthermore, we forecast income to rise a strong 0.5% m/m, recovering from the soft 0.1% increase in July.
• In addition, we expect core inflation to inch up 0.2% m/m, lifting the annual measure from 1.6% to 1.8% y/y — its highest level since December — while headline inflation should have only ticked up 0.1% m/m (1.5% y/y) as food and energy prices remain a headwind.”

Analysts at UOB Group say in their latest Quarterly Global Outlook that the RBA is seen keeping the "wait-and-see" stance for the rest of the year.

• “As expected, the RBA kept its OCR on hold at 1.00% in September.
• We expect the RBA to monitor developments for a few months. By November, the RBA will have received more data on inflation, as well as further labour market information. For now, there are good reasons for the RBA to remain on a “wait-and-see” approach, especially since the OCR is already at a historic low of 1.00%.
• Our current forecast is for a steady OCR of 1.00% for the rest of this year. Further easing in 2020 cannot be ruled out. We will, as such, keep watch on global trade tensions, soft consumer spending, undershooting inflation, and mediocre wages, which will be factors that may prompt us to revise our view further ahead."

Bert Colijn, a Senior Eurozone Economist at ING, thinks that the most important takeaway from the ESI (down from 103.1 to 101.7 in September) is that the spillover from weak manufacturing to services remains muted, which is at odds with the message from the PMI earlier this week. 

• "This signals that the problem remains somewhat isolated to manufacturing for now, although the service sector will ultimately feel the repercussions if this lasts much longer.
• Industrial sentiment was dismal in September, dropping from -5.8 to -8.8. This was because of a deterioration on all fronts: recent production, current order books, and production expectations all declined. This provides a clear indication that an end to the industrial slump is not yet in sight.
• Service sector sentiment improved from 9.2 to 9.5 in September though. This was a small recovery from a larger August drop but it indicates some stabilization in the sector, which is needed for continued GDP growth given the contraction in manufacturing. Most encouraging underlying indicators were related to the labour market. More optimistic assessments about recent hiring and future employment needs provide some hope that labour market strength can keep domestic demand afloat.
• The message from short-term indicators continues to be worrying. GDP growth in 3Q will come in very muted and the question is whether spillover effects will worsen in the fourth quarter when Brexit risk and tariffs on Europe potentially come to the fore. Monetary leading indicators do signal improvements mid-2020, which is of course very conditional on geopolitical risks. Hold on to your hats, we are in for a couple of exciting quarters."

Another leg higher in the sovereign bond rally that’s captivated investors over the past year could push 10-year Treasuries yields below 1% and send the yen surging more than 16% from current levels, according to an RBC Capital Markets analysis.

The scenario for the yen to surge to 90 per dollar isn’t the bank’s main forecast. In such a risk sequence, domestic Japanese investors would be scrambling to hedge, exacerbating the currency move, according to RBC’s chief currency strategist Adam Cole.

His team expects the more likely outcome over the next six to 12 months is for the yen to weaken, on the assumption there’s limited easing from the Federal Reserve and that costs remain elevated for hedging overseas assets.

Hedging costs are a critical component for the bank’s alternative scenario to become a reality. This year’s two Fed cuts have lowered the price of hedging back to levels seen at the start of 2018, but forward-curve pricing implies a gap could open up, according to the RBC analysis.

Rabobank analysts point out that in the US, the preliminary estimate of August durable goods orders is due, as are data on personal income and spending.

“The former will shed further light on the US economy in the context of a trade conflict that continues to drag on. Consensus expects durables (excluding transportation) to post a small gain after a -0.4% decline in July. Despite expectations of a 0.4% m/m gain in personal income, personal spending is expected to slow somewhat from the 0.6% m/m seen in July. More importantly, the PCE deflator is expected to hold steady at 1.4%. However, the core measure may show some increase in inflation, with the core PCE expected at 1.8%. Nonetheless, that is still some way from the Fed’s target and these data should thus not change the US economic assessment, and we continue to look for another insurance cut in December.”

According to the report from European Commission, in September 2019, the Economic Sentiment Indicator (ESI) decreased markedly in both the euro area (by 1.4 points to 101.7, lowest level in nearly five years) and the EU (by 1.4 points to the long-term average of 100.0).

The decrease in euro-area sentiment resulted from a substantial deterioration of confidence in industry, and a slight decline in retail trade, while confidence improved among consumers and remained broadly stable in services and construction.

The sharp decline in industry confidence (-3.0) resulted from managers' markedly more pessimistic views on all three components, i.e. production expectations, the current level of overall order books and the stocks of finished products. Broadly unchanged services confidence (+0.3) resulted from managers' slightly more optimistic views on past demand and virtually unchanged assessments of the past business situation and their demand expectations. The slight increase in consumer confidence (+0.6) reflected households’ more positive expectations about the general economic situation and, to a lesser extent, their own financial situation, while their assessment of their past financial situation and intentions to make major purchases remained broadly stable. The slight decline in retail trade confidence (-0.5) was driven by markedly more cautious views on the adequacy of the volume of stocks. Virtually unchanged construction confidence (-0.1) resulted from managers' slightly more negative assessment of the level of order books and broadly stable employment expectations. Finally, financial services confidence (not included in the ESI) increased markedly (+6.3), reflecting strong improvement in all its three components, i.e. managers' assessment of the past business situation and past and expected demand.

CIBC Research discusses the USD outlook and the Fed rate call expectations. CIBC targets the USD index DXY at 98.9  by year-end and at 95.6 by Q2 of 20120.

"We share the view of many FOMC speakers that rate cuts will be a bit shallower than markets anticipate, with the rate cuts in July and September to be followed by one more 25 bp ease in December, and then a pause. While US data has been a mixed bag, the economy has yet to have a quarter of growth below its non-inflationary potential. American consumers are in a healthy position based on an ample savings rate, low monthly financial obligations, and ongoing labor income growth. That underlying resilience, while not preventing a further slowing in growth, should be bullish for the dollar against overseas currencies in the very near-term, given the deeper risks to growth abroad (i.e. China and Europe), as well as uncertainty surrounding Brexit and trade, that will propel safe haven inflows in the greenback. Over a longer time horizon, an easing in the appetite for such flows should see DXY give back some of its strength. For that, we’ll need some fiscal stimulus in Europe to reduce its dependence on negative yields, and an easing in US-China trade tensions. Any reduction in the attractiveness of US assets as a safe haven serves to weaken the greenback, given America’s persistent current account deficit," CIBC adds. 

The Federation of Small Businesses (FSB) said 39% of small companies thought a no-deal Brexit would have a negative impact, compared with 34% who thought it would have no impact and 11% a positive impact. The remainder said they did not know.

Most of those firms who thought a no-deal Brexit would harm their business said they were unable to plan for this scenario.

"As the risk of a chaotic no-deal Brexit on Oct. 31 remains alive and kicking, it is worrying that many small firms have either not prepared or are finding that they can't prepare," FSB national chairman Mike Cherry said.

"Ongoing uncertainty is to blame for preparations hitting the skids with the picture still not clear as to how the UK will leave the EU on 31 October."

The average cost of small businesses' preparations for a no-deal Brexit stood at around 2,000 pounds ($2,470), rising to 3,000 pounds for companies that import and export, according to the FSB's survey of 1,062 firms conducted in late August.

The International Energy Agency (IEA) may cut its growth estimates for global oil demand for 2019 and 2020, should the global economy weaken further, its chief said on Friday.

The Paris-based agency trimmed in August its global oil demand growth estimates for 2019 and 2020 to 1.1 million and 1.3 million barrels per day (bpd), respectively, as trade woes weighed on global oil consumption, making demand grow at its slowest pace since the financial crisis of 2008.

"It will depend on the global economy. If the global economy weakens, for which there are already some signs we may lower oil demand expectations," Fatih Birol told.

He said China's economic growth, which has fallen to the lowest in nearly three decades, could also mean there would be some revisions, as Beijing is "an engine of the demand growth."

"But at the same time, we shouldn't forget low oil prices also (put) upward pressure on the demand," the IEA chief said.

Danske Bank analysts suggest that a range of ECB speakers will draw attention today.

“We will watch in particular what Chief Economist Philip Lane has to say at 16.30 CEST today, as sceptical voices about the ECB package have grown louder. In a Handelsblatt interview yesterday, he already hinted that the ECB has leeway to cuts interest rates further. Financial market focus continues to be on the US liquidity situation, see FX Edge: After the USD liquidity scare. In terms of data releases, today's focus is on the US PCE core, Swedish retail sales and the Norwegian unemployment rate. We expect US PCE core to have risen +0.2% m/m in August, implying an unchanged PCE core inflation rate at 1.8% y/y. In the euro area, today's highlight will the Commission's economic confidence indicators. PMIs and Ifo painted a gloomy picture about the state of the euro area economy. In today's release, in particular we will look out for whether service sector confidence is sliding further.”

• Rates could go either way after Brexit

• Brexit uncertainties are a slow puncture for the UK economy

• The UK economy has weakened markedly, opening up modest amount of spare capacity.

• Persistently high Brexit uncertainty now looks most likely outcome for the UK, even without a no-deal Brexit.

• Risks to global economy are tilted towards further disappointment.

• Limited and gradual rate rises needed if global growth recovers and Brexit uncertainty falls significantly.

• Cost of changing policy course if Brexit outcomes change is probably quite low.

• Deferring monetary policy changes until after Brexit outcomes clear could lead to inappropriate policy.

GBP falls on dovish remarks from Saunders, sending GBP/USD back below the 1.23 handle.

According to the report from Insee, over a year, the Consumer Price Index (CPI) should increase by 0.9% in September 2019, after +1.0% in the previous month, according to the provisional estimate made at the end of the month. This slight drop in inflation should result from a slowdown in energy and food prices, partly offset by an acceleration in services prices and a lesser drop in manufactured goods prices. Tobacco prices should increase at the same pace as in August 2019.

Over one month, consumer prices should fall back (–0.3%, after +0.5% in August). Services prices should contract sharply, due to the seasonal downturn in the prices of certain tourism-related services. Food prices should drop after a 0.5% rise in the previous month. Contrariwise, those of manufactured goods should gather pace and energy prices should increase after a stability in August. Finally, tobacco prices should be stable.

A separate report from Insee showed that in August 2019 household consumption expenditure on goods was stable in volume* (+0.0% after +0.4%). The increase in manufactured good spending (+1.1%) was offset by a drop in food purchases (–0.9%) and energy consumption (–1.3%).

Profits at China's industrial firms contracted in August, reversing the previous month's brief gain, as weak domestic demand and the trade war with the United States weighed on corporate balance sheets.

Industrial profits fell 2% in August from a year earlier to 517.8 billion yuan, data released by the National Bureau of Statistics (NBS) showed. That compared with a 2.6% gain in July.

Profits have slowed since the second half of 2018, despite some transitory rebounds, with falling factory-gate prices threatening to further knock profits as economic growth skidded to a near 30-year low. As a result, policymakers are widely expected to unveil more support measures to boost a slowing economy amid sluggish consumption, rising export pressure and faltering domestic demand.

The decline in profits was in line with grim manufacturing readings in August with industrial production growth falling to its weakest in 17-1/2 years while exports also tumbled.

For January-August, industrial firms earned profits of 4.02 trillion yuan, down 1.7% year-on-year, the same as the reading in the first seven months.

According to the report from Federal Statistical Office (Destatis), the index of import prices decreased by 2.7% in August 2019 compared to the corresponding month of the preceding year. Economists had expected a 2.6% decrease. In July 2019 and in June 2019 the annual rates of change were -2.1% and -2.0%, respectively. 

From July 2019 to August 2019 the index fell by 0.6%. Economists had expected a 0.3% decrease.

The index of import prices, excluding crude oil and mineral oil products, decreased in August 2019 by 1.9% compared to August 2018 and in comparison with July 2019 it fell by 0.2%.

The index of export prices decreased by 0.1% in August 2019 compared to the corresponding month of the preceding year. In July 2019 and in June 2019 the annual rates of change were +0.2%, each. From July 2019 to August 2019 the index slightly fell by 0.1%.

Karen Jones, analyst at Commerzbank, suggests that EUR/USD has sold off to the base of the weekly channel at 1.0905, but the new low of 1.0904 has not been confirmed by the daily RSI and we have 13 counts on the daily and weekly charts.

“Extreme caution is warranted. Failure at the base of the one year down channel at 1.0905 would put the January 2017 low at 1.0829 and the 78.6% Fibonacci retracement of the 2017-2018 advance at 1.0814 on the map. The topside remains capped by the three month resistance line at 1.1063, and will stay offered below here. Only a daily chart close above the August 26 high at 1.1164 would confirm a bottoming formation and put the 200 day ma at 1.1244 back on the cards. For now the market is on the defensive.”

EUR/USD

Resistance levels (open interest**, contracts)

$1.1106 (2170)

$1.1065 (1046)

$1.1033 (1777)

Price at time of writing this review: $1.0921

Support levels (open interest**, contracts):

$1.0891 (2188)

$1.0846 (873)

$1.0798 (493)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date October, 4 is 92599 contracts (according to data from September, 26) with the maximum number of contracts with strike price $1,1050 (8121);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2564 (1441)

$1.2478 (887)

$1.2419 (508)

Price at time of writing this review: $1.2330

Support levels (open interest**, contracts):

$1.2296 (766)

$1.2263 (371)

$1.2224 (929)

Comments:

- Overall open interest on the CALL options with the expiration date October, 4 is 16692 contracts, with the maximum number of contracts with strike price $1,2500 (1766);

- Overall open interest on the PUT options with the expiration date October, 4 is 19333 contracts, with the maximum number of contracts with strike price $1,1900 (1315);

- The ratio of PUT/CALL was 1.16 versus 1.14 from the previous trading day according to data from September, 26

* - 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.