The S&P 500 hit a fresh high on Monday, despite the growing chances of policy tightening by the Fed as investors focus on surprises in US corporate reports and sliding Treasury yields. Tesla's capitalization has exceeded $ 1trillion on the back of the news that car-sharing company Hertz ordered 100K Teslas. Despite incriminating investigations, Facebook has delighted investors with solid user growth and an intention to buy back $50 billion in shares. The momentum may push the US market to a new high, as earnings surprises from Twitter, Alphabet and Microsoft, which are reporting today, are likely to be positive as well.
As of October 20, of the 500 companies included in the S&P 500, 67 companies reported. Earnings of 86.6% of them beat expectations, 11.9% disappointed, indicating potential presence of bullish bias in the US stock market.
In the FX, the dollar is trying to develop an upward movement after breakout of a two-week bearish channel. In the last few sessions, the dollar index consolidated close to the upper border of the channel, in addition, three tests of the support zone 93.50 lacked meaningful continuation:
A potential surge of optimism amid positive reporting by large US companies this week may nevertheless exert short-term pressure on the dollar.
The weakening of the euro amid a price shock in the commodity market will likely force the ECB to revise its short-term inflation forecast, which may become known at tomorrow's meeting. If the ECB does not clarify the timing of the curtailment of the main asset purchase program, in combination with the economic forecast, this could be a blow to the real yields of European bonds and lead to an additional Euro downside.
Yesterday's data showed that Germany's leading indicator of economic activity, the IFO index, declined for the fourth straight month in October:
Both current situation and expectations deteriorated, which increases the risk of stagnation of the German economy in the fourth quarter. Given the slowdown in the bloc's leading economy, the ECB's bias to cut stimulus measures or report upcoming cuts may be small right now, which is definitely a bearish Euro signal: