A bit of a lacklustre start to the week with the November Iron Ore futures moving two dollars off its highs as it enters a corrective phase. Fundamentally the question is can China keep consuming iron ore at this rate, and if so for how long? There has not been an analyst in the market that has not tried to call the top in some form or other over the last few months (myself included). Every time the market hits exhaustion point, it is buoyed by another round of stimulus. Our technical report from today (https://fisapp.com/wp-content/uploads/2020/10/FIS-Technical-Iron-Ore-12-10-20-2.pdf) would suggest there is more to the upside, providing this correction does not break the USD 116.35 level. Technically weakening, but maybe not technically done.
The November Capesize futures came under pressure early on with price action going as low as USD 18,875. However, this was short lived, early sellers were caught on the wrong side of a bounce with the futures finishing the day up USD 250 (+1.29%) having seen a positive RSI divergence on lower time frames. Too early to tell if there will be further upside intraday movement as the market needs to show us more if it is to gain any form of traction.
Panamax futures seemed to be the reverse of the Capesize on the open. A strong upside move straight out of the blocks looked like it would gain traction. However, prices came under pressure after the index, before closing pretty much unchanged from Friday. Fitting for a market that has now been rangebound for 25 days!
Like the Panamax, the November Supramax futures finished the day unchanged having seen early upside buyers. Technically it looked like it was getting ready to run, but having failed to break the USD 11,025 resistance before lunch, it decided it was not ready for any grand statements having seen the index move only 2 points since Friday.
Elsewhere, oil has come under pressure as the beating of the drum continues about quotas. The reality is that the Brent futures are not really moving. Down 2.75% (USD 41.6) from Fridays close, what we are really seeing is the market find balance having overextended its upside moves after Trump was released from hospital. This is earnings week for the banks and the starting gun for the season, volatility could increase as the stock markets have got to justify this run. If earnings disappoint it will be hard to be economically bullish, which will not be pretty for the black gold.
Asian shares finished their game of catch up that started after Golden Week with an impressive 2.65% gain. If you do the math that will be the 4% that the U.S. stocks rallied during the week’s holiday, no crystal ball need for that one!
The S&P 500 continues to run which would suggest that expectations are positive for earnings. However, big tech is the dominant topic of the day on BB news with buy recommendations coming out of JPM. Lockdown it would appear is good for some companies.
It would not be a market close without mention the green back. The USD basket continues to come under pressure as the market prices in a potential Biden victory. Justified? Not relevant, on paper the market is not liking it if it happens, there will be bargain hunters below 91.74 (DXY Index Bloomberg). The divergence will be a whopper that will tempt even the most ardent bears into a little bit of short covering.