Lagarde's Press Conference

The GBP/USD pair attracts some follow-through buying during the Asian session on Friday and looks to build on the overnight bounce from the 1.2975-1.2970 region, or a two-month low. Spot prices currently trade around the 1.3020-1.3025 area, up 0.10% for the day amid a modest US Dollar (USD) downtick, though any meaningful appreciating move still seems elusive. 

The USD Index (DXY), which tracks the Greenback against a basket of currencies, pulls back from its highest level since early August as traders opt to take some profits off the table following a strong rally since the beginning of this month. That said, growing acceptance that the Federal Reserve (Fed) will proceed with modest rate cuts over the next year should limit the USD losses and cap the GBP/USD pair. 

Furthermore, a surprise fall in the UK Consumer Price Index (CPI) to the lowest level since April 2021 and below the Bank of England's 2% target paves the way for further interest rate cuts. In fact, the money markets are now pricing in over a 90% chance that the UK central bank will lower borrowing costs by 25 basis points (bps) at its upcoming meeting in early November and cut rates again in December. 

This might further hold back traders from placing aggressive bullish bets around the British Pound (GBP) and contribute to keeping a lid on the GBP/USD pair. Hence, it will be prudent to wait for strong follow-through buying before confirming that the recent retracement slide from the 1.3435 region, or the highest level since March 2022 touched last month has run its course and positioning for further gains.

Traders now look to the release of UK Retail Sales for some impetus ahead of the US housing market data – Building Permits and Housing Starts later during the early North American session. This, along with Fed Governor Christopher Waller's speech, will influence the USD and produce short-term opportunities around the GBP/USD pair, which seems poised to register losses for the third successive week.

Source: FXSTREET

Silver price (XAG/USD) extends its winning streak for the fourth consecutive day, hovering around $32.00 per troy ounce during the Asian trading session on Friday. The price of the grey metal receives support from safe-haven flows amid rising tensions in the Middle East.

Israel's military and the Shin Bet security service confirmed on Thursday that Yahya Sinwar, the Gaza Strip Chief of the Palestinian Islamist group Hamas, was killed by Israeli forces during an operation in southern Gaza on Wednesday. Sinwar's death has raised concerns among the families of Israeli hostages taken to Gaza by Hamas, who fear that the killing of the militant leader might increase the risk to their loved ones, according to Reuters.

The non-yielding assets like Silver gains demand due to the prevailing sentiment of interest rate reductions by major central banks. US Federal Reserve (Fed) is expected to reduce interest rates by 50 basis points by the end of 2024. According to the CME FedWatch Tool, there is a 90.8% probability of a 25 basis point rate cut in November and a 74.0% chance of another cut in December.

On Thursday, the European Central Bank (ECB) lowered its Main Refinancing Operations Rate by 25 basis points to 3.4%. Recent inflation data also indicates that both the Bank of England (BoE) and the Reserve Bank of New Zealand (RBNZ) may consider potential rate cuts next month.

Source: FXSTREET

While it awaits approval of its merger with Capital One Financial , Discover Financial  has been moving ahead with strong earnings and a rising stock price.

On Wednesday after the market closed, Discover posted third quarter results that showed double-digit growth and easily topped earnings estimates.

The nation’s fourth largest credit card company generated $4.45 billion in revenue in the quarter, which was up 10% year over year and beat estimates of $4.35 billion.

Net income surged 41% to $965 million, or $3.69 per share, which crushed estimates of $3.45 per share.

Discover stock was up another 2% on Thursday, and it is now up about 34% year-to-date, outperforming most of its competitors, other than American Express .

The company continues to wait for a resolution in its merger with card issuer and bank Capital One. In the meantime, investors have been reaping the benefits of Discover’s strong performance. Is it too late to buy?

What’s happening with the merger?

Earlier this year, a megamerger in the credit card space was announced when Capital One said it was buying Discover.

This could be a transformative deal in the credit card space as it would bring together one of the largest banks and card issuers, with a payment processor, potentially creating a card company to rival Visa (NYSE:V) and Mastercard (NYSE:MA).

But this is a big, complicated deal with a lot of moving parts and major implications in the industry, so it has been under intense regulatory scrutiny and has faced legal challenges. When it goes through remains uncertain, although the companies have targeted late 2024 or early 2025.

In the Q3 earnings presentation, Discover officials said that merger applications are under review by the regulators and integration planning activities are advancing as anticipated.

Net interest income rises

While Discover does offer some consumer banking services, it does not have the type of deposit franchise as its banking competitors. As it generates most of its revenue from interest income on its loans, Discover has been better able to take advantage of the high interest rate environment, since it has much lower deposit costs than most.

That has resulted in an increase in net interest income, something other financial firms have found difficult to achieve. Interest on its loans makes up most of its overall revenue, about 82%, so high rates have been a boon. In Q3, net interest income rose 10% year-over-year to $3.66 billion, or 10% year-over-year.

Further, its net interest margin (NIM) — which is the percentage of loan interest a bank gains after subtracting deposit costs — jumped to 11.4%, up 43 basis points year over year. This is ridiculously high compared to most banks, among which the average NIM is typically in the 3% range.

Net interest income was buoyed by a 4% increase in loans to $127 billion and higher yields on loans. The average yield on its credit card loans was 16.23% in the quarter, up 80 basis points from the same quarter a year ago.

Further, it saw non-interest income rise 13% year over year in the quarter to $77 million, boosted by a 4% increase in transactions on its networks.

Is it a buy?

Investors who bought shares earlier this year got a nice return, but is it still worth the investment?

It is hard to say when the deal will go through, but until then, it should remain a favorable environment for Discover. Even though rates are trending lower, they are still very high relative to recent history, and the company forecasts the NIM to remain where it is, in the 11.2% to 11.4% range.

However, the firm did update its 2024 guidance on loan growth, and the outlook is slightly worse, with loan growth expected to be down low-to-mid single digits in fiscal 2024, down from previous guidance of loan growth being down low single digits.  

The stock is also cheap, with a P/E ratio of 11, down from 14 in June.

Discover stock should still have some decent upside in front of it, at least until the merger happens. 

Source: FXSTREET

Crude oil futures steadied on Friday after strong US retail sales data, but Chinese economic indicators remained mixed and prices were headed for their biggest weekly loss in more than a month on concerns about demand.

Both contracts settled higher on Thursday for the first time in five sessions after data from the Energy Information Administration (EIA) showed that US crude oil, gasoline and distillate inventories fell last week.

Brent and WTI are set to fall about 6% this week, their biggest weekly decline since Sept 2, after Opec and the International Energy Agency cut their forecasts for global oil demand in 2024 and 2025 and concerns eased about a potential retaliatory attack by Israel on Iran that could disrupt Tehran's oil exports.

IG market strategist Yeap Jun Rong said while oil prices remained subdued on Friday, there were signs of near-term stabilisation after the market factored in fading geopolitical risks over the past week.

"The recent run in stronger-than-expected US economic data does offer further relief around growth risks, but market participants are also side-eyeing any recovery in demand from China, given recent stimulus unleash," he said in an email.

US retail sales increased slightly more than expected in September, with investors still pricing in a 92% chance for a Federal Reserve rate cut in November.

Meanwhile, third-quarter economic growth in the world's top oil importer China was at its slowest pace since early 2023, though consumption and industrial output figures for September beat forecasts.

China's latest data dump offered somewhat of a mixed bag, with the country now officially falling short of its 5% growth target for the year and the absence of a sizeable fiscal push seems to leave some reservations on overall oil demand, said IG's Yeap.

Markets, however, remained concerned about possible price spikes given simmering Middle East tensions, with Lebanon's Hezbollah militant group saying on Friday it was moving to a new and escalating phase in its war against Israel after the killing of Hamas leader Yahya Sinwar.

Geopolitical risks, such as developments in the Middle East, will continue to drive fears of supply disruptions and in turn short-term spikes in oil prices, said Priyanka Sachdeva, senior market analyst at Phillip Nova.

Source: The edge markets