CAD and MXN underperform on trade deal developments, Netflix releases stellar earnings

Summary:

• Stocks surge as risk appetite returns

• CAD and MXN moved lower as trade deal vote in the US Congress may be postponed

• Netflix (NFLX.US) soared in the after-market trading on the back of stellar earnings report

The US stock indices rushed higher yesterday being boosted by gains seen in the other parts of the World as well as better-than-expected corporate earnings. All three major benchmarks from Wall Street close over 2% higher with Nasdaq (US100) outperforming and adding almost 2.9%. During the Asian session we saw the same story. Shares in Australia and Japan posted strong gains with both S&P/ASX 200 (AUS200) and Nikkei (JAP225) adding over 1%. New Zealand dollar is trading as the best performing G10 currency for the second straight day.

USDCAD has been moving in a downtrend for the majority of the summer period. The selling eased somewhat recently and the newest developments concerning the Canada-Mexico-US trade deal pushed the pair higher today. Source: xStation5

Canadian dollar and Mexican peso were moving both moving lower over the night after the US Senate Majority Leader Mitch McConnell addressed new NAFTA deal. During an interview with Bloomberg McConnell said that he does not think new trade deal with Canada and Mexico will be put under vote this year. He added that he did not speak with the White House on the matter but he is sure that it will be on top of the agenda next year. He cited legislatory hurdles on the way to processing the agreement in such short period of time. While this may seem as just postponing the vote a few months there is an issue that may make passage of the deal difficult next year - midterm elections. In case Democrats manage to get majority in the House of Representatives things may complicated. Democrats may block the passage of the deal or seek concessions from the White House. Such developments would be a source of uncertainty for both business and investors and may deteriorate sentiment towards Mexican and Canadian assets.

Nikkei (JAP225) continues to recover after steep slump seen in the first half of October. The index closed a notch below the resistance zone that has fend off bulls several times this year. Notice that today’s candlestick points to investors’ indecisiveness. Source: xStation5

Donald Trump seems to have found a new mantra. The US President once again criticized Fed for the pace of the interest rate hikes this time in an interview streamed on Fox Business Network. Trump is the first US President in two decades to speak so explicitly about the actions of the Federal Reserve. He reiterated that the central bank is independent but he is not happy with what it is doing. Trump repeated that the current pace of rate hikes is damaging for the economic growth and is a reason of the stock market sell-offs like the one we saw in the previous week. The former Fed Chairman, Janet Yellen, addressed this remarks saying that while it is not illegal for the President to speak about central bank it is not wise either. She said that such remarks can be viewed as attempts to politicize and undermine Fed’s reputation. In case the confidence in the Federal Reserve is lost, the confidence in the US dollar will be lost too. While this is a scenario that may look unrealistic one should be cautious that stiffening rhetoric further may raise questions among market participants.

Netflix (NFLX.US) has been underperforming as of late but the combination of 200-session moving average, upward trendline and support zone allowed it to bounce higher. Stellar earnings report greatly boosted sentiment towards the stock therefore investors should be cautious when trading Netflix shares during today’s US session as additional volatility may surface. Source: xStation5

Last but not least, Netflix will definitely come into spotlight during today’s US session. The company submitted its third quarter earnings report after the US market close yesterday and it was stellar. The sentiment towards the company ahead of the earnings release was mixed after previous report showed a slowdown in the user growth. However, this seems to be the past now as Netflix added 6.96 million user in the June-September period against expected 5.09 million. Net income was 25.69% higher than median estimate and came in at $467.8 million. On the other hand, revenue was almost in line with forecasts of $3.995 billion as it reached $3.999 billion in the third quarter. The company stays optimistic about the whole year predicting that it will add a total of 28.9 million user in whole 2018. Shares were trading as much as 19% higher in the after-market trading.