US Mid-Terms to take place next Tuesday

The US Mid-Terms are set to take place next Tuesday and could have influence the market’s depending on the outcome.

MORNING OVERVIEW

The ECB remained on hold yesterday as was widely expected, yet the resignation announcement of ECB President Lagarde was what we found most interesting. In particular, her statement that “I don’t think I can remain neutral” was a surprise. Depending on who emerges as the frontrunner to replace her, the EUR could find support or face bearish pressures. In the Equities markets, we’re monitoring a tech rout with Intel dropping roughly 25% at the time of this report.

MARKET SNAPSHOT

KEY MARKET THEMES

01 — US Mid-Terms in sight

The US Mid-Terms are set to take place next Tuesday. Therefore, market participants may be exploring their options prior to the election date in order to hedge their bets or to prepare for a variety of scenarios. For example, the Republicans taking control of Congress or the Democrats, or even a mixed scenario with each party controlling one part of Congress i.e the Senate or the House of Representatives. Overall, the elections could lead to heightened trading volatility and in our view we would not be surprised to see the Democrats taking control of one part of Congress. Moreover, US oil executives from Chevron and Exxon Mobil have cancelled plans to travel to the Mid-East next week, which could be loosely tied to the report that the US may be preparing to strike Iran following the Mid-Term elections.

Market implication (USD): Neutral

02 — ECB Lagarde announces her resignation

The ECB left rates unchanged yesterday, as widely expected. However, the main focus for markets may have been not the Bank’s policy intentions but the announcement that President Christine Lagarde will step down on February 27, five months before her term ends.The move by Lagarde surprised the markets and especially her comments that she could no longer remain neutral. Nonetheless, the EUR may face downwards pressures until a frontrunner emerges for her position.

Market implication (EUR): Bearish

03 — US Equities in trouble

Alphabet shed 12.5% in Wednesday’s after-hours trading following a weak earnings report. Amazon also missed market expectations on both EPS and revenue, while Intel issued weak forward guidance. Intel’s stock in particular has dropped by roughly 25%.These developments appear to be weighing heavily on market sentiment, which could pull US stock markets substantially lower as the week draws to a close.

Market implication (US100): Bearish

WHAT MATTERS TODAY

Germany’s preliminary HCIP rate for October

Time GMT+2): 15:00

Expected: 3.1%
Previous: 3.3%

Potential market reaction:
Could weaken EUR

ASSET FOCUS

[GOLD , Commodities]

Gold appears to be moving in a downwards fashion, with the precious metal’s price having cleared our old support now turned to resistance at the 4080 (R1) level. We opt for a bearish outlook for the commodity’s price and supporting our case is the RSI indicator below our chart which tends to imply a bearish market sentiment. For our bearish outlook to be maintained, we would require a break below our 3945 (S1) support level, with the next possible target for the bears being our 3820 (S2) support line. On the other hand, for a sideways bias we would require gold’s price to remain confined between our 3945 (S1) support level and our 4080 (R1) resistance line. Lastly, for a bullish outlook, we would require a clear break above our 4080 (R1) resistance level, with the next possible target for the bulls being our 4200 (R2) resistance line.

KEY LEVELS

• Resistance (R1): 4080
• Resistance (R2): 4200
• Support (S1): 3945
• Support (S2): 3820

Technical View: Bearish

CROSS-ASSET VIEW

TRADING SPHERE VIEW

Bullish for OIL

Our base case:
We wouldn’t be surprised to see oil prices moving higher next week, considering the possible strikes on Iran by the US next which have been floating around for a few days.In addition US oil executives from Chevron and Exxon Mobil have cancelled their trips to the Middle East next week, which tends to beg the question as to their reasoning behind such a decision.

What would change our view:
No strikes on Iran next week

RISKS TO THE VIEW

Unexpected events

Changing of the balance of power in Congress

TODAY’s WATCHLIST

01 Germany’s HICP rates