Daily Analysis – 29 sept 2016

Daily Analysis – 29 sept 2016

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Today and tomorrow we have two days full of macroeconomic announcements and many monetary policy officials will give their view about global economy.
Global equity market and riskier assets continue to rally as yesterday oil producers finally agreed to cut production in an agreement that fulfill market expectations. This was the first cut production after eight years and revealed an important improvement on Iran and Saudi Arabia relations. We continue to see high probabilities for higher crude oil prices from the current levels. We expect also Canadian dollar currency which is closely correlated with oil prices to gain value in a medium timeframe.

We expect that markets will continue to consolidate and to move higher until USA elections as central banks at the moment still have a lot of power in order to move markets. Despite the fears for Deutsche Bank even junk bonds continue to move higher. As D Trump in the recent debate spoke for a gigantic bubble on equity market no one wants to vindicate him (before USA elections) with a large sell off on equities. Despite the fact that H Clinton won more the impression during the first debate latest polls show that D Trump still remains very popular and very close to Clinton.

For the EUR/USD we see some potential upside risk as the uncertainty over USA elections , the high possibility that Fed will not hike within 2016 and the reality that ECB is far away at the moment from adopting new stimulus will keep EUR/USD steady or even higher.
The USD/JPY fundamentally remains the best bullish pair however we can see the bullish euphoria to fade fast as BOJ can intervene at any time and the political risk over USA elections can trigger a risk on/off play.

Despite some rebound on Deutsche Bank share price we continue to keep an eye on German bank. We should not forget that European banking stocks have fallen 24 per cent this year. Deutsche Bank is the most leveraged institution in the world and the possibility that might not have any more capital to service litigation costs or fail to meet stricter regulation standards can create a systemic risk which will rock all the world. The damage can be huge as the global economic system is in a highly fragile stage after eight years of tremendous slow economic growth and recovery. Chief Executive Officer of Deutsche Bank and high ranking German politicians and technocrats (including Merkel) try the last days to talk down Deutsche Bank issues. Whatever they say we see high probabilities that if the situation get worst the German political system will rush to save the German bank simply because has not an alternative choice. A possible need for a Deutsche Bank bailout means the political end of Merkel. We recommend that if Deutsche Bank panic sirens begin to sound to buy gold in any case.
On one hand the usa elections, the effectiveness of monetary policy and the high prices of stock market and the Deutsche Bank issue are still the four main headaches for investors at the moment. On the other hand the Victory of Clinton in the last debate and the hopes that she will be the next USA president, the OPEC deal and the central banks’ ability to remain the only player in the town give a risk on tone.

Key points

• Italy cut its growth forecast for this year and next ahead of a key referendum.
• AMZN up 25% for the year. And it’s September.
• BoE Gov Carney Sees Positive Long-Term Prospects for UK Economy.
• Fed’s Williams says U.S. economy can handle rate hike.
• Japanese retail sales fall for the sixth consecutive month.
• Draghi – ECB not to blame for Deutsche Bank’s problems.
• BOJ’s Kuroda: To pursue appropriate yield curve for achieving inflation target.
• BoJ’s Kuroda: Expansion Of Monetary Base Possible If Necessary.

The market is busy with news today. Follow our economic calendar and start tading with us: https://www.triomarkets.com/resources/market-calendar/