WEEKLY MARKET SNAPSHOT 23/10-27/10|The ECB rate decision, its potential bond purchase reduction and the latest USA GDP figure, will be in sharp focus over the coming week

Oct 20 • Is The Trend Still Your Friend • 106 Views • No Comments

The coming week is an extremely busy week for high impact data releases, Australia’s CPI, currently at 1.9%, will come under scrutiny, as rumours persist that an interest rate adjustment is possible if (and when) the annual CPI rate exceeds the generally accepted central bank target of 2% consistently. There’s a raft of Markit PMIs released for leading Eurozone economies and the USA on Tuesday, these are leading rather than lagging metrics, PMIs should be carefully watched for any signs of underlying economic weakness.

Two highly critical bank interest rate decisions are announced this week; the ECB at some stage will have to move away from the ZIRP (zero interest rate policy), whilst an announcement regarding the actual commencement of the asset purchasing programme tapering is anticipated. If reduced from €60b, to the proposed €30b, then it’s logical to expect the euro to react. The Bank of Canada also makes its interest rate decision, currently at 1%, the central bank recently surprised the markets with a rate increase, therefore any further change is considered unlikely.

Japan’s CPI will come under close scrutiny, with an impending general election imminent in Japan, all upcoming Japanese data will be closely monitored over the coming days and weeks. The final high impact news event of the week concerns the latest USA GDP figure for Q3, the annualised rate is currently 3.1%, a fall to 2.1% is forecast by the economists’ polled. Such a reduction may potentially derail the beliefs amongst many investors and analysts, that the USA economy is strong enough to withstand a series of normalising rate rise increases, beginning in December and the quantitative tightening, to reduce the Fed’s $4.5 trillion balance sheet.

The latest GDP figure for the U.K. will also be revealed, currently at 1.5% annually, the expectation is for the Q3 figure to come in at 0.3%, which will take the year to date growth to 0.8%. If the Q3 figure misses forecasts, then analysts may quickly deduce that a year to date figure of 1% may be missed, and with Brexit still lingering as a huge issue, any significant miss will be immediately seized on by sterling investors.

Monday is a relatively quiet introduction to the week’s economic calendar news, from Asia China’s September property prices are released, Japan’s leading index, coincident index and store sales are reported. The Swiss sight deposits are always published on a Monday and can impact markets, if they’re significantly reduced or increased. The Eurozone govt debt v GDP figure is published for 2016, at 89.2% currently it omits the circa €1.7 trillion asset purchase/quantitative easing scheme the ECB has administered over recent years. The Eurozone consumer confidence reading for October will be released, at -1.2% for September an improvement is anticipated. The various U.K. CBI surveys are published; orders, optimism and sales price readings will be delivered.

Tuesday beings with German import prices, currently rising by 2.1% YoY, Japan’s Nikkei manufacturing PMI is revealed; currently at 52.9 for September, whilst supermarket sales data is also published for Japan. Markit Economics will publish a raft of PMIs for the Eurozone; manufacturing, services, composite readings for: Germany, France and the Eurozone. The ECB bank lending survey is published, as are the readings for the current government debt and deficit. The series of Markit PMIs for the USA are also published as is the Richmond Fed manufacturing index for October; expected to slip to 16, from 19.

Wednesday starts the day with focus on Australian data, as the latest CPI figure is published; forecast to remain at 1.9% YoY. Germany’s IFO readings will be delivered, these business climate, expectations and current climate readings are highly regarded, as sentiment readings these medium impact results are closely monitored by investors for signs of weakness in Europe’s largest economy. The U.K. will be under close scrutiny as the latest GDP figure is revealed, currently at 1.5% YoY there is little expectation for any change. As attention shifts to the USA durable goods order growth is forecast to come in at 0.6% for September, a fall from the 2% recorded in August. Canada’s central bank will announce its interest rate decision, currently at 1.0%, there is no expectation for a change, the bank will also deliver its monetary policy report, and later in the afternoon governor Poloz will hold a press conference, explaining the rationale behind the policy and interest rate decision. Home sales data for the USA is forecast to remain consistent, despite a seasonal adjustment. Various readings for the New Zealand economy will be released; trade balance, exports and imports.

Thursday begins with Australia’s latest import and export prices, focus then turns to Europe, as the latest German GfK consumer confidence reading is published, followed by the ECB interest rate decision, currently at 0.00%. Detail on any reduction on the asset purchase scheme taper, currently running at €60b a month, will be revealed. The USA advanced trade balance figure will be released, always in deficit, the expectation is for a rise to -$64.1b for September. Pending home sales in the USA YoY are predicted to improve above the last reading of -3.1% YoY. Late evening Japan’s latest CPI figure will be delivered, currently at 0.7% there is little consensus expecting a change.

Friday starts with Germany’s retail sales, we then wait until midday to receive any high impact news in the form of the latest annualised USA GDP reading, forecast to shrink to 2.5% in the third quarter of 2017, from 3.1%. Various consumption data on USA consumers will be revealed, and the week ends with the monthly comprehensive publication of the respected sentiment readings from the University of Michigan, to include the: confidence, current conditions and expectations readings.

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