Wall Street plummets, AUD a tad lower post IMF release

Summary:

• US indices saw heavy declines on Monday as FANG stocks plummeted

• Australian dollar moves lower following RBA minutes and IMF remarks

• BoJ’s Kuroda suggests the current course of monetary policy to stay in place

FANG stocks drag NASDAQ down

There was a gloomy start to the new trading week in the United States after major indices experienced profound declines with the NASDAQ (US100) losing as much as 3%. The two remaining indices performed a bit lower compared to the tech index but still far away from a positive territory - the SP500 (US500) went down 1.7% while the Dow Jones (US30) lost 1.6%. Where did so heavy decline come from? FANG stocks seemed to be a major culprit which was reflected by a relative underperformance of the NASDAQ. Nvidia was by far the worst performing stock shedding as much as 12% in response to a miss in revenue and guidance in its third quarter 2019 earnings report. Note that the report was already known at the end of the past week and on Friday the stock lost 19%, hence the Monday’s session turned out only an extensions of bleak moods. Let us recall that the company’s revenue totalled $3.18 billion compared to the consensus of $3.24 billion. In a post-earnings phone call with analysts CEO Jensen Huang said that excess inventory contributed to lower than expected guidance for the next quarter where Nvidia estimates it will achieve $2.7 billion revenue (+/-2%). The number came well below the median expectations suggesting a further expansion and revenue close to $3.4 billion. On top of that, we had a sharp sell-off in FANG stocks - Facebook -5%, Netflix -4.5%, Amazon -3.8% and Alphabet -3.6%. In addition to that Apple saw a 4% decline in response to revelations that the company cut orders for its iPhone XR, iPhone XS and iPhone XS Max. The company declined to comment about the story brought by the Wall Street Journal. Notice that from its all-time high the stock plunged almost 20%. On Friday Morgan Stanley sent a note where it suggested that concerns regarding a faltering demand are overdone. Grim spirits have been seen across Asian indices as well with Chinese stocks falling virtually 2% at the time of preparing this note.

From a technical standpoint the NASDAQ does not look well. The price failed to stay above its crucial moving averages for longer and it moved back thereafter. As a result now bulls could aim for the area between 6230 and 6350 points. Source: xStation5

IMF warns about downside risks to the Australian economy

The International Monetary Fund released a report where it said that a balance of risks to the Australia's economy were tilted to the downside mainly due to slowing growth in China and trade tensions. It recommended the Reserve Bank of Australia should keep low interest rates. Trying to outline the outlook for the economy it said that economic expansion is expected to continue with gradually rising upward pressure on wages and prices. Finally, the institute referred to tightening of global financial conditions suggesting that it could spill over into domestic financial market and thereby raise funding costs bearing a negative impact on borrowers. Keep in mind that Australian household keep a substantial portion of debt - this is among top risks why the RBA refrains from lifting borrowing costs. Meanwhile, the Australian central bank released the minutes from its latest meeting - nothing surprising there. The minutes reiterated that a next move in rates is more likely to be up than down but also underlined there is no a strong case for a near term move. As a consequence, it appears that any rate hikes in the following years could soon sink into oblivion. The market-implied likelihood for a rate increase in the next year suggests that a 25 basis point move could occur in December but these chances are likely to be pushed back. The Aussie is trading roughly 0.15% lower against the greenback this morning.

The EURAUD seems to be poised to rise toward its nearest resistance around 1.5850. It would coincide with a turnaround in the EURUSD. Source: xStation5

In the other news:

• BoJ’s Haruhiko Kuroda said that he believes negative rates is a necessary part of current policy adding there are little chances of reaching the 2% inflation target in the fiscal year 2020

• German producer price index grew 3.3% YoY in October matching expectations

• Bitcoin keeps declining this morning, down almost 5%

• US 10Y yield trades around 3.063%