Wall Street Inches to Record Highs

Daily Analysis - 18/10/2017

Raft of Positive Economic Data Boosts Equity Benchmarks


The Dow Jones Industrial Average briefly broke above the key psychological level of 23000 for the first time ever, buoyed by a batch of stronger than expected US economic data points. A round of solid corporate earnings reports also extended the uptrend, helping catalyse further gains in the index’s components.

Investors Ponder Federal Reserve Chair Choices

A series of positive US economic data points helped instil a sense of optimism and push equity valuations higher.  Industrial production in the US grew by 0.30% month-on-month in September, matching the consensus estimate, while capacity utilization stood at 76.0 compared to the 75.8 reported in August. Another upbeat development was the 0.70% gain in import prices during September, marking the biggest monthly gain in over a year and potentially helping stoke further inflationary upside.

On the earnings front, Morgan Stanley and Johnson & Johnson easily topped market expectations, further accentuating the bullish sentiment. Meanwhile, the US dollar gained against most major rivals on news that Stanford University’s John Taylor, considered one of the more hawkish names in the race to be the next Federal Reserve chief, made a favourable impression on President Donald Trump. Dow futures are back on the retreat, slipping to 22974 after briefly crossing 23000 on Tuesday.


UK Inflation Climbs to 5-Year Heights

Increases in transport and food prices saw UK inflation climb to its highest level in more than five years in September, adding to pressure on the Bank of England to tighten interest rates at its next monetary policy meet scheduled for early November. Figures from the Office for National Statistics revealed that British annual inflation accelerated to 3.00% last month, the fastest pace of growth since early 2012.

Consumer prices gains have now exceeded the BoE's 2.00% target for eight consecutive months. The Central Bank’s Monetary Policy Committee has repeatedly hinted it expects to raise borrowing costs soon to curb inflation despite signs of slowdown in the economy. The GBPUSD pair is down in Wednesday trade, falling to around the 1.3180-mark with 1.3150 representing immediate support on the downside.


Australia Leading Economic Index Paints Dour Outlook

A widely-followed leading indicator of economic activity in Australia continued to forecast a sombre outlook for next year, suggesting growth could trail below levels projected by the Reserve Bank of Australia. The six-month annualised growth pace of the Westpac-Melbourne Institute Leading Economic Index, which estimates the rate of economic activity 3 to 9 months in to the future, dropped again in September, sliding to -0.21% from -0.16% in August.

The reading indicates Australian economic growth is likely to be 0.21 percentage points lower than its historical average, translating to around 2.50% expansion. By comparison, the RBA is currently expecting GDP growth to accelerate to 3.00% by the middle of 2018. AUDUSD has reversed from the highs of early Wednesday trade to hover around 0.7850.


Mexican Peso Rallies on Hopes for NAFTA Deal

The Mexican Peso rebounded from the lows of Tuesday against the US dollar after trade negotiators announced they were extending discussions surrounding the reworking of the North American Free Trade Agreement into next year. Investor sentiment got a lift after US Representative Robert Lighthizer, Canada’s Foreign Minister Chrystia Freeland, and Mexico’s Economy Minister Ildefonso Guajardo released a statement after several rounds of meetings that showed progress and the desire to revamp the agreement.

The Peso had slid against the greenback earlier in the session amid reports that Mexico and Canada disagreed with US demands, including higher wages for Mexican workers and changes to Canadian dairy subsidies. USDMXN tumbled -1.50% to end Tuesday around 18.7795. The Peso has lost close to -5.00% this month amid concerns that talks to overhaul the 23-year old NAFTA agreement could be abandoned.


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