Oil slumps, stocks generally higher ahead of Big Tech earnings

* Yen slides after Japan’s ruling coalition lost its parliamentary majority

* Oil prices plunge by over 5% as Israel avoids hitting refineries

* Stocks on firm footing after relatively moderate Israeli attack, Iran response

* Dollar mixed with eyes on big incoming risk events  

FX: USD steadied after four straight weeks of gains. That win streak hasn’t happened since February. There are multiple current drivers and imminent risk events to contend with. It’s payrolls week with various employment measures released in the coming days, with NFP on Friday likely to cause the most volatility. That is preceded by Q3 GDP on Wednesday and PCE data on Thursday. A 25bps rate cut is fully priced into next week’s FOMC meeting. There is less certainty about December.

EUR steadied around 1.08 after dipping below the figure in early Asian trade. Last week’s low is at 1.0760. There was some talk from hawkish ECB officials dampening down talk of aggressive rate cuts. While lower oil prices should be welcome in the region, euro/US rate differentials have continued to widen to the widest since April. Q3 GDP and inflation data top this week’s EUR risk events.

GBP printed a narrow range doji, settling virtually on its 100-day SMA at 1.2969. Last week’s low is 1.2906/08. There is not a lot of UK data out this week, so UK budget will take centre stage. This is not expected to have a major impact on sterling. In short, higher taxes could be a drag on GDP in the near term, but likely more investment creates greater supply as well as demand.

USD/JPY slumped after the election results on Sunday. The ruling LDP and coalition partner lost their majority. This raised concerns about the shape and policy direction of the next government. Local stocks got a boost on more stimulus expected, whichever party comes into power. The major traded up to 153.87 before US Treasury yields fell and prices retraced. The Democratic Party for The People and the Innovation Party, who could now be key to form a government, have both been critical of BoJ hikes. Keep a close eye on the political negotiations this week, ahead of the BoJ meeting on Thursday.

AUD started the week on another weak footing after four consecutive weeks of losses.Prices slid below 0.66 with the next major downside level at 0.6574.That’sthe major Fib retracement level (38.2%) of the August to September move. USD/CAD moved higher once more to new highs at 1.3907. The loonie largely ignored the sell-off in oil prices, though it has prevented it from bouncing like other major currencies. The August spike high is 1.3946.

US Stocks settled generally in the green. The S&P 500 closed 0.27% higher to settle at 5,823. The tech-dominated Nasdaq 100 gained 0.26% to finish at 20,351. The Dow settled up 0.65% at 42,387. Notably small caps outperformed as the Russell 2000 index jumped 1.6%. The ‘Trump Trade’ is likely one reason for this, with Trump’s pro-business plans a big recent driver (lower taxes, less regulations), while the soft landing scenario is also supportive. Boeing lost 2.8% after it launched a $22bn stock offering to shore up its finances amid ongoing strikes.

Asian stocks: Futures are mostly positive. Asian stocks were generally in the green, helped by Israel’s limited military strikes on Iran. The ASX 200 was mixed with softness in energy and utilities offset by tech and mining outperformance. The Nikkei 225 shrugged off political uncertainty and surged. The Hang Seng and Shanghai Composite swung between gains and losses before settling modestly higher.

Gold steadied again as it continued to consolidate just below Wednesday’s record high at $2758. Its 21-day SMA is at $2,677. There was a limited reaction to the Israel military action, higher bond yields and data pointing to a 20% slump in China’s Q3 demand.

Day Ahead – JOLTS data kicks off NFP week

Today’s job vacancy figures out of the US could be the last “clean” read on the labour market data for Fed officials. Hiring is expected to pick up from the historically low 3.3% headline print in August. Layoffs, one of the main reasons why payroll gains remain positive, are forecast to remain near its past low (1%).

The job openings will also be of interest as Fed policymakers have made it clear they do not want to see any further deterioration in labour demand at this point. And as it is among the best leading indicators for wage growth, the quits rate will be in focus in the JOLTS data. This all comes ahead of the monthly non-farm payrolls data on Friday in which the headline number is expected to be very ‘noisy’ due to the potential impact of recent hurricane weather and strikes.  

Chart of the Day – Alphabet kicks off megacap tech earnings week

This week is the busiest week of the third-quarter reporting season overall, with well over 150 S&P 500 companies set to post results. Five of the “Magnificent Seven” group of tech titans, that have played a major role in driving the market over the past couple of years, are set to report quarterly results: Google parent Alphabet, Microsoft, Facebook owner Meta Platforms, Apple  and Amazon. Because of their massive market values, those companies jointly account for 23% of the weight of the S&P 500, meaning market reaction to their results could sway broader indexes in coming days.

Alphabet releases after the US closing bell. Its advertising segment, which includes Google search and YouTube ads, remains the biggest contributor to total revenue. But YouTube is facing challenges with digital video ads becoming more saturated. Google cloud will also be in focus as it has invested heavily aiming to catch with AWS. On the chart, prices have hit near three-months highs and the 100-day SMA at $170.30, after tracking sideways for several weeks. Support sits around $164 with upside targets at $176.42 and $179.95.