US Markets

Boeing shares jumped over 4% to post a new high for the year at $148.00 as the company beat expectations for Q3 earnings.

Despite a decline in revenue, the aircraft manufacturer said earnings rose to $2.28 billion, or $3.60 per share, from $1.70 billion, or $2.47 per share during Q3 2015. Core earnings, which exclude some pension and other costs, rose to $3.51 per share from $2.52 a year ago.

Both figures include a special gain of 70 cents per share, reflecting a tax benefit Boeing received by claiming depreciation on plants and equipment.

Positive forward guidance brought in longer term buyers as the company raised its target for jetliner deliveries for the year to 750 from 740 and lifted its year-end revenue estimate to 95.5 billion from 93.5 billion.

Shares of Lockheed Martin closed 5% higher at $243.00 after the defense contractor beat Q3 earnings expectations.

The company reported adjusted earnings of $3.61 per share, well above the consensus of $2.89 per share. It reported sales of $11.55 billion, up from $10.06 billion in the year earlier period and above the consensus of $11.45 billion.

Lockheed said it expects overall 2016 earnings per share of $12.10 and sales of $46.5 billion, as adjusted for divested business. The company expects ongoing operations to lift 2017 net sales by 7%.

The strong price response was welcomed as shares of Lockheed have fallen 9% in the last three months from the August high of $264.00.

The price of Apple shares traded in a wide range after the company reported slightly better earnings but the lower quarterly results marked the third quarter of year-over-year revenue declines.

The iPhone maker reported earnings of $1.67 per share, just above the $1.66 expected consensus. Revenues came in at $46.90 billion, just shy of the 46.94 billion expected. That’s down from the comparable figure of $1.96 per share on sales of $51.5 billion a year ago.

Apple shares rose briefly to $119.00 in after hours trading, but were last seen down more than 2% and dipping below the mid-September support area at $115.00. The company reported that it shipped 44.8 million iPhones, which is down from 48.04 million a year ago.

The USD ended on a firm note last week as foreign exchange traders were focused on the divergence of monetary policy between the Greenback and the other G-7 currencies. Over the last several trading sessions, we learned that European Central bank is still open to more stimulus in December, the Australian economy is not as vibrant as the RBA suggests and that the Reserve Bank of New Zealand is thinking about easing again before the end of the year. We also learned that the U.K. economy is slowing at a time when US growth aggregates have been posting mostly stronger numbers  for employment, housing and retail spending.

The steady flow of generally hawkish comments from FOMC officials stands in contrast to the dovish language coming from other central banks and has helped the USD Index reach an eight-month high just short of 99.00 at Friday’s NY close. It’s our base case that the likelihood for further interest rate normalization will increase over the next few weeks which will support the USD, keep the SP 500 index in a “buy on the dip” pattern and lift 10-year treasury yields back into the 1.95% area

With only a few first-tier fundamental data points scheduled for this week, It’s worth looking at some of the technical price patterns which have emerged over the last several trading sessions. The most prominent technical pattern is the “Golden Cross” in the USD Index. A Golden cross is formed when the 50-day moving average crosses above the 200-day moving average and suggests a continuation to higher levels. We note that the last time this pattern emerged, the USD actually consolidated for a couple of weeks before moving higher. With US Durable Goods orders scheduled for Thursday and GDP to be released on Friday, the consolidation phase could be much shorter this time.

Since the Euro currency makes up close to 58% of the weighting of the USD Index, it’s not surprising that the same moving average time frames have crossed to the downside in the EUR/USD. This pattern is called the “Deadman’s Cross” and suggests last week’s break of the July trend line will see downside range extension this week.

The US Dollar Index reached a seven month high of 98.10 on Friday as both US Inflation data and the Retail Sales report beat expectations. The Greenback gained ground against the GBP, JPY and the CHF, but it was the move against the Euro which held the most technical significance going into the weekend.

The EUR/USD posted a NY close below 1.1000 for the first time since mid-June and looks likely to challenge key support at the 1.0950 level.

Thursday’s ECB meeting could possibly be an important pivot point in both the single currency and global equity markets. The idea that recent stock market valuations are heavily reliant on central bank stimulus could be tested if ECB chief Mario Draghi isn’t clear about the direction and composition of future EU monetary policy.

During the last four ECB meetings, there has been extreme volatility in both the currency and equity markets. The March 10th meeting saw the EUR/USD trade in a 400 point range while during the June 2nd meeting the single currency moved over 200 points higher on the day.

From an equity perspective, the German Dax dropped close to 600 points during the March 10th meeting and close to 250 points after the meeting in June.

Granted, the expectations for expansion on the QE purchase pool and extension of the duration of stimulus were much higher than forecasted for this week’s meeting.

However, we’ve seen a lot of conflicting headlines about the central bank’s thinking since the last meeting. Two weeks ago there was high level talk about tapering asset purchases and last week that was reversed with comments about extending and expanding the current level of stimulus.

During the last meeting, Mr Draghi expressed confidence about the resilience and positive outlook for the Eurozone economy but also lowered the staff growth forecasts and announced EU committees to evaluate additional stimulus options. With recent EU growth aggregates showing stabilization across the region, Mr Draghi has cause to express an optimistic tone.

The AUD/USD managed to recover into the weekend and retake the .7600 handle. The RBA minutes and the domestic employment report are the key data points for the Aussie this week. The early forecasts are for a bounce back in manufacturing and construction jobs to lift employment growth.

USD Index