Stocks recover from declines; Oil jumps above $60

Summary:

• Dow bounces after Boeing reports

• DE30 reclaims 12700 handle

• Oil jumps above $60 on surprise inventory draw

• Pound mixed a Brexit bill left in limbo

The latest set of earnings results from the US have boosted the Dow Jones Industrial Average (US30 on xStation), with two of the benchmarks largest-weighted stocks reporting ahead of the opening bell. The index had earlier slid to its lowest level in almost 2 weeks below 26,600 but has since recovered after Boeing and Caterpillar reported their figures for the third quarter. These two stocks account for comfortably more than 10% of the broader index due to the price-weighted nature with Boeing alone having a weighting of more than 8%.

DE30 pulled back yesterday but found a support at the 33-period exponential moving average (H4 interval). The index attempted a move higher at the beginning of Wednesday’s trading and has remained well supported throughout the day, trading near 12800 at the time of writing. There is quite a lot of potential support levels in case the index was to erase morning jump and deepen yesterday’s decline. However, the zone ranging around 12115 pts handle can be considered key support as it is not only marked by previous price reactions but also by the lower limit of the Overbalance structure (yellow box). A break lower would, in theory, hint a short-term trend reversal.

The weekly crude oil inventories have shown an unexpected drawdown and sending oil market to their highest level of the day. The full report was as follows:

• Headline: -1.7M vs +2.2M exp. API: +4.5M

• Gasoline: -3.1M vs -2.3M exp. API: -0.7M  

• Distillates: -2.7M vs -2.7M exp. API: -3.5M

• Cushing: +1.5M vs API: +2.0M

• Production unchanged at 12.6 mpbd

Tuesday’s votes in UK parliament were pretty much in keeping with the consensus forecast as Boris Johnson chalked up his first victory in the House of Commons as MPs backed his Brexit deal. However, any joy for the PM was short lived as the failure to pass the program motion has effectively ruled out the chances of meeting his “do or die” pledge in delivering Brexit by October 31st.

The failure in the second vote of the evening means that the path of the bill has now been paused, residing in a state known as limbo. It is now up to the EU in deciding whether to offer an extension and for how long and Donald Tusk has wasted little time in suggesting a 3-month flextension which would move the deadline to January 31st but also allow for an earlier exit if the Withdrawal Agreement Bill could be ratified. There has been some suggestion that the EU27 members may not back such a move, with French president Macron seen as the most likely to object, but on balance this remains improbable and the base case now becomes an extension. 

The GBPUSD rate may have turned lower in the short term, according to the H1 Ichimoku cloud. Fib retracements offer potential levels to look to below should the declines continue with the 23.6% at 1.2825 and the 38.2-41.4% region spanning 1.2683-1.2709. As for potential resistance the cloud itself around 1.2935 and recent highs of 1.3012 are levels to keep an eye on.