Weekly Focus: Mr Hunt, Corporate Reporting and China

The situation in the markets is speeding up. The recently appointed finance minister in the United Kingdom Kwasi Kwarteng saw his last day in office at the end of last weekafter failing to justify unfounded proposed tax cuts. An experienced conservative, Jeremy Hunt, took over the finance minister’s office on October 14 and it seems he hit it off immediately with the Governor of the Bank of England (BoE) Andrew Baily.

The new minister has started off strong. He already promised to accelerate plans to calm down U.K.’s debt market and scrapped the tax cutting strategy of Prime Minister Liz Truss. He is going to offer his own vision of the fiscal policy in the British Isles. It seems that he also has the extended support of BoE’s Governor Mr. Hunt and this may please the markets too, at least for a while. So a threat of possible debt market turmoil in the U.K. seems to be deeply muted this week. Investors are likely to switch to Q3 corporate reporting in the United States and the running Congress of the ruling Communist Party in China.

Corporate reporting is of less interest since no financial results could move the market from the downside track towards a recession. Even if market stars like Tesla and Netflix deliver outstanding Q3 reports following positive reporting of the U.S. banking sector, it will only postpone the upcoming downturn impact.

China’s current track is much more interesting to follow as its leader Xi Jinping outlined the country’s superpower ambitions as it is stepping into the third phase of developing a modern China with technology and innovation as a priority. He vowed that the country will achieve the degree of “socialist modernisation” by 2035 and become a “powerful modern socialist country” by the middle of this century. This is where Taiwan, with its vast semiconductor production base, comes into play and is seen to be very important. The United States has to respond to this as it cannot allow China to take over its global economic and political leadership. Meanwhile, this week the framework of China’s action plan towards technological dominance could be shaped.

The S&P 500 broad market index continues within the aggressive upside pattern with targets at 3850-3950 despite the sell-off last week. The market situation may remain mostly unchanged by Thursday if Jeremy Hunt succeeds in calming down the market crowd. The S&P 500 index may remain within 3600-3700 points. Long-term targets, however, are still deep down at 2000-2200 points.

Brent crude prices continue to sit above $90 per barrel after the decision of the Organisation of the Petroleum Exporting Countries and allies (OPEC+) to cut production by 2 million barrels per day. But recession expectations are strongly weighing down market sentiment. The nearest support is located at $88-90 per barrel and this week we may witness a test of this support. If it is broken a deep free fall of crude prices could be initiated. Mid-term extreme targets at $50-65 per barrel of Brent crude by November are intact.

Gold prices are being dragged down circling around $1650 per troy ounce, which is below the resistance zone at $1680-1700. The decline of gold prices may accelerate at any moment by the end of October. Nevertheless, it is very risky right now to add new short positions amid strong geopolitical uncertainties that may push gold prices up.

EURUSD is aggressively sliding down towards 0.95000-0.96000. But there are no good entry points to open short positions. Traders have to wait.

GBPUSD has changed its pattern to the aggressive downside with targets at 1.09000-1.10000. Considering possible stabilisation of the U.K.’s debt market these targets are unlikely to be achieved. Nonetheless, it would be wise to wait for the market picture to become clear and any trade signals to appear, at least by this Friday.