Following a daily close with modest losses on Thursday, led by the technology sector, major equity indexes in the U.S. rebounded on Friday and hit intraday all-time highs.

Technology giants such as Apple, Microsoft, Netflix, and Facebook recorded robust gains on the last day of the week, lifting the S&P Information Technology Index (SPLRCT) 0.6% higher on the day.

Financials, which weighed on the indexes yesterday, traded mixed on Friday as Bank of America shares rose more than 1% on higher-than-expected profit results while Wells Fargo recorded its largest one-day drop (-3.17%) after it lowered the revenue forecasts for the fourth quarter. At the end of the week, the S&P Financials Index (SPSY) was virtually unchanged around 434. “Because of the reach that financials have into the economy, the market likes to see its what earnings are reflecting, be it on loan growth, it’s really trying to look at the health of the economy,” Nana Adae, global investment specialist, J.P. Morgan Private Bank in Chicago, told Reuters.

In the meantime, healthcare sector took a heavy blow from US President Donald Trump’s executive order, which aims to weaken Obamacare by reducing billions of dollars in subsidies to private insurers for low-income households. The S&P 500 Health Care Index (SPXHC) lost 2 points or 0.3%.

The Dow Jones Industrial Average added 37.73 points, or 0.17%, at 22,878.74, the S&P 500 rose 2.81 points, or 0.11%, at 2,553.74 and the Nasdaq Composite gained 14.68 points, or 0.24%, at 6,606.19.

Headlines from the NA session:

US Retail Sales: Strong auto sales drive September growth – Wells Fargo
WTI retreats from 2-week highs, still above $51.00
US CPI: Inflation looked anemic, hurricanes aside  – Wells Fargo
Fed’s Fischer: Slow inflation is a good reason for caution
Fed’s Evans: Priority now is for inflation to get back up to Fed’s 2% objective
US Tsy Sec. Mnuchin: Aim is to get tax reform legislation to Trump’s desk at start-Dec
Dollar dropped like hot potato after core CPI disappointed – BBH
US CPI and retail sales support December rate hike story – ING
US: Retail sales for Sep 2017 were $483.9 billion, an increase of 1.6% from the previous month
US: CPI for all items increases 0.5% in September as gasoline index rises sharply
US: Consumer sentiment surged in early October, highest level since start of 2004 – UoM

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“On Friday, a researcher at the Institute for American Studies at the North Korean Foreign Ministry warned that the joint exercise, as well as a flight by two American B-1B bombers over South Korea on Tuesday, compelled the North to take military counteraction,” The NY Times reported on Friday.

“Vessels from the United States Navy and the Republic of Korea (ROK) Navy are scheduled to participate in the Maritime Counter Special Operations exercise (MCSOFEX) Oct. 16-26, in the East and West Seas to promote communications, interoperability, and partnership in the 7th Fleet area of operations.” the United States Navy’s 7th Fleet said in a statement earlier today.

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The euro was unable to hold to gains on Friday against the US dollar and dropped during the American session despite US data. Near the end of the week, EUR/USD was up 80 pips from the level it had seven days ago, steady above 1.1800.

US data weakens USD but not enough 

Friday’s data showed a rise in US retail sales and CPI but with readings below expectations. The inflation print triggered a decline of the US Dollar across the board. EUR/USD jumped from 1.1805 to 1.1874 but then turned to the downside, moving again toward 1.1800. 

US CPI: Inflation looked anemic, hurricanes aside  – Wells Fargo

It was about to end the week hovering around 1.1815/20, down for the second day in a row but positive for the week. It is the first gain after falling during the previous four weeks The minutes of the FOMC meeting released on Wednesday and some profit taking could have weakened the USD over the week. 

Week Ahead 

After a busy week, the next one looks thin regarding economic reports. In the US, the most important data will be industrial production for September, to be released on Tuesday. Also, traders will keep an eye on  FOMC members. Yellen will open the week on Sunday. 

In the Eurozone, final inflation numbers for September will be released on Tuesday, but no change is expected from the preliminary reading.  “However, it will be interesting to see which components caused the fall in service price inflation and whether they point towards any sustained upwards or downwards trend in core inflation, which will be important for ECB policy normalisation going forward”, said analysts at Danske Bank. The next ECB meeting is October 26. 

Bundesbank’s Weidmann: Path of ECB bond buying programme depends on price outlook 

ECB’s Draghi: A very substantial degree of monetary accommodation is still needed
 

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“A week ago it was far from clear whether PM May would hold on to her job beyond the weekend. The tensions surrounding May have died back for now, allowing GBP to recoup the losses suffered at the end of last week. However, as illustrated by the pound’s reaction to Brexit related news yesterday, the pound remains highly sensitive to political events,” argue analysts at Rabobank.

Key quotes:

“At the press conference that followed the end of the fifth round of Brexit talks yesterday, EU Chief Negotiator Barnier remarked that the dialogue had become deadlocked. This confirmed fears that there would be no start to trade talks this month.  In turn this intensified fears that, with only 18 months left before the UK leaves the EU, there could be insufficient time to cobble together a deal.  That said, after a sharp move lower yesterday, the pound recovered its poise within a few hours.   News that the EU27 could launch its own internal preparations for a new relationship with the UK and that the Union is ready to talk about how to avoid a ‘hard Brexit’ brings renewed hope that the UK will not be leaving the EU in March 2019 without a deal.  Also supportive for the pound are reports that the EU could offer the UK a 2 year transitional deal.  Given that this was mooted by PM May in her Florence speech, this would appear to be another olive branch from the EU to the UK government.  The endorsement of May’s 2 year transition period and the implication that the UK could still have access to the customs unions and single market until 2021 should remove some pressure on firms to put into action plans that assume a hard Brexit.  This relaxation of uncertainty should be beneficial for business confidence.  That said, it delays rather than removes the cloud of uncertainty that is handing over UK businesses meaning that downside risk for GBP have been dampened rather than removed.”

“A Rabobank study published this week estimates that a hard Brexit would cost the UK economy 18% of GDP growth until 2030 compared to our estimates of growth if the UK remained within the UK.  We estimate that the economic impact of a soft Brexit is far less severe.  Yesterday’s brief GBP sell off highlights the concern that is embedded in the market regarding the possibly of no deal being in place in March 2019.  It also suggests that investors are deeply concerned about PM May’s position that ‘no deal is better than a bad deal’.”

“Over the next couple of weeks the market will be turning its attention back to the BoE’s November policy meeting. The market is mostly prepared for a rate hike, though there remains a lot of doubt as to whether the economic outlook justifies a move.  We have previous argued that Carney’s hawkish commentary in September was aimed at stabilising the pound and that he had some success in doing this until the UK political backdrop soured in early October.  However, if a November rate hike is accompanied by further signs that UK growth is sluggish, the market will assume (as we do) that the BoE may not be able to follow any policy move for a prolonged period.  This suggests that while a November rate hike may have removed some downside potential for the pound, it is unlikely to be able to completely counter the political and growth risk that are undermining the pound.  We see risk for EUR/GBP to move back to the 0.90 area on a 3 mth view.  That said, if the EU and UK Brexit negotiations have not achieved significant progress by December, EUR/GBP could be trading closer to 0.92 on a 3 mth view. ” 

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After making a decisive break through the $5000 mark yesterday, the BTC/USD pair extended its upside to a fresh all-time high at $5874 before going into consolidation. As of writing, the pair was trading at $5675, adding $235, or 4.3%, on the day.

On Friday, Coinbase, a major U.S.-based digital currency exchange, announced “We are excited to announce the ability for customers to instantly purchase digital currency using a US bank account. Previously, customers who purchased using a bank account had to wait several days before receiving their digital currency. Customers can now buy up to $25,000* and receive access to their digital currency immediately,” giving extra fuel to the pair’s rally.

Commenting on this recent development, “the Coinbase instant buy program is yet another step toward mainstream acceptance of bitcoin. This will make bitcoin easier to use as a transactional currency and could have the effect of increasing liquidity. The added transaction volume should also support the price,” Brian Kelly, founder of BKCM LLC, a hedge fund managing digital assets, told CNBC.

Technical outlook

FXStreet analyst Omkar Godbole wrote “bitcoin’s price suffers a corrective pullback every time the stochastic and the relative strength index (RSI) signal overbought conditions (marked by hand sign and red circles on the chart). The stochastic oscillator is a chart analysis indicator that helps determine where a trend might be ending. The trend line drawn from the July 16 low and Aug. 22 low and extended further is seen offering resistance around $6,100 levels. Though overbought, the RSI is still rising. Meanwhile, the stochastic is looking to retreat from the overbought territory. A technical correction would gather pace once the RSI starts losing altitude. A short-term consolidation around $5,800 or brief spike to $6,000 followed by a short-term pullback to $5,000-$5,300 looks more likely,” in an article published on Coindesk.com.

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Following a sharp drop to a fresh 16-day low at 92.59, the US Dollar Index, which tracks the greenback against a basket of six trade-weighted peers, erased its daily losses and was last seen at 92.94, virtually unchanged on the day.

Today’s macroeconomic data from the U.S. triggered a short-winded sell-off in the early NA session. Following a 0.2% increase in August, the core CPI rose 0.1% on a monthly basis in September and failed to meet the market estimate of 0.2%. On a yearly basis, the core CPI growth remained unchanged at 1.7. However, rising energy prices lifted the annual CPI to 2.2% from 1.9%. Other data showed that retail sales increased by 1.6% after contracting by 0.1% n August.

Although the initial reaction pushed the DXY lower, it didn’t take long for the index to stage a recovery as the December rate hike expectations remained unchanged despite the disappointing inflation figures. According to the CME Group FedWatch Tool, the markets are pricing an 81.7% probability of a rate hike, unchanged from the previous day.

Fed: on track for a December hike – Danske Bank

Moreover, the Consumer Sentiment Index released by the University of Michigan surged to its highest level in more than 13 years at 101.1 in October from 95.1 in September, fueling the index’s rebound. 

Nevertheless, regardless of that late recovery, the index is on track to close the week lower for the first time since the first week of September. The FOMC September meeting minutes, which was released on Wednesday and caused the index to drop from mid-93s below the 93 mark, seems to have played a major role in this week’s weak performance.

Technical outlook

The initial hurdle for the pair aligns at 93 (psychological level) followed by 94.10 (Oct. 6 high) and 95 (psychological level). On the downside, supports could be seen at 92.75 (50-DMA), 92 (psychological level) and 91.50 (Sep. 22 low).

Today’s data from the U.S.

US: Retail sales for Sep 2017 were $483.9 billion, an increase of 1.6% from the previous month
US: CPI for all items increases 0.5% in September as gasoline index rises sharply
US: Consumer sentiment surged in early October, highest level since start of 2004 – UoM

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The University of Michigan’s Consumer Sentiment Index rose 6.0 points in early October to 101.01. According to analysts from Wells Fargo,  the surge appears to be driven by increased optimism about employment and income prospects. 

Key Quotes: 

“Consumer Sentiment showed surprising strength in early October. The proportion of consumers stating the country will have continuous ‘good times’ rose by 8 percentage points, while the proportion that expects ‘bad’ times fell 6 points. The Consumer Sentiment Survey tends to focus more on financial questions and is likely being pulled higher by the roaring stock market.”

“The proportion of consumers expecting their income to rise over the next year jumped 3.4 points to 54.6 percent, while concerns about job security remained near cycle lows.”

“Inflation expectations for the next 12 months plunged to just 2.3 percent, which may raise a red flag at the Fed. The drop may simply reflect lower gasoline prices following the earlier hurricane-driven spike.”
 

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Analysts from Danske Bank think the CPI inflation print for September and the jobs report for August are the two most important releases next week in the United Kingdom, ahead of the Bank of England meeting next month.

Key Quotes: 

“In the UK, we think the CPI inflation print for September and the jobs report for August are the two most important releases ahead of the Bank of England (BoE) meeting next month. Our view is that the releases should not alter the BoE members’ views on the economy significantly and hence we still expect a 25bp Bank Rate hike next month. Markets have priced in a 60% probability of a rate hike.”

“Retail sales for September are due on Thursday, which is an indicator that usually moves markets but in reality is a very weak indicator of actual consumption growth.

“The BoE’s Mark Carney, David Ramsden and Silvana Tenreyro are testifying before the UK’s Treasury Committee on Tuesday. We will look for any hints on whether they have changed their minds on a November hike. 

“We think the EU leaders are unlikely to conclude there has been ‘sufficient progress’ in phase 1 of the Brexit negotiations (divorce bill, citizens’ rights and Irish border) to move to phase 2 (future relationship) at the EU summit next week. More negotiation rounds will be needed in November and early December.”

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Jane Foley, Senior FX Strategist see a risk in the EUR/GBP pair of a move back above 0.90 in a 3-month view and warns that it could trade near 0.92 if not progress is seen in Brexit negotiations by December. 

Key Quotes: 

“A week ago it was far from clear whether PM May would hold on to her job beyond the weekend. The tensions surrounding May have died back for now, allowing GBP to recoup the losses suffered at the end of last week. However, as illustrated by the pound’s reaction to Brexit related news yesterday, the pound remains highly sensitive to political events.”

“Over the next couple of weeks the market will be turning its attention back to the BoE’s November policy meeting. The market is mostly prepared for a rate hike, though there remains a lot of doubt as to whether the economic outlook justifies a move. We have previous argued that Carney’s hawkish commentary in September was aimed at stabilising the pound and that he had some success in doing this until the UK political backdrop soured in early October. However, if a November rate hike is accompanied by further signs that UK growth is sluggish, the market will assume (as we do) that the BoE may not be able to follow any policy move for a prolonged period. This suggests that while a November rate hike may have removed some downside potential for the pound, it is unlikely to be able to completely counter the political and growth risk that are undermining the pound.”

“We see risk for EUR/GBP to move back to the 0.90 area on a 3 mth view. That said, if the EU and UK Brexit negotiations have not achieved significant progress by December, EUR/GBP could be trading closer to 0.92 on a 3 mth view.”

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