Markets likely to be moved by politics as opposed to economics on Monday

Sep 25 • Morning Roll Call • 1721 Views • Comments Off on Markets likely to be moved by politics as opposed to economics on Monday

The reaction of markets during the early part of the week may be as a consequence of politics as opposed to economics, as (once again) the: inflammatory language of Trump versus North Korea looks set to be raised. Not withstanding this ongoing situation, the German election fallout will be digested, as will be the vague speech delivered by the UK’s prime minister Theresa May in Florence, on Friday afternoon European time.

Theresa May’s speech had little detail, was heavy on rhetoric and soundbites, and caused a minor reduction in the value of sterling versus its main peers, as investors and market watchers were left none the wiser with regards to the direction and form the UK’s Brexit will take. May appeared to want to kick the issue into the long grass, by suggesting a “transitional period” of two years. In simple terms; nothing would change for the first two years after the final 2019 Brexit, thereafter the U.K. government appears clueless as to the form Brexit would take.

The German election and the coalition negotiations that will now take place, may impact on European market behaviour, however, despite Angela Merkel’s party seeing its vote share collapse from circa 41% to 33%, she’ll maintain power in the Bundestag, once a successful coalition is put together, most likely with the FDP and the Greens. Therefore the markets will witness both the continuity and certainty they crave.

In relation to the North Korean tensions, the rhetoric has (once again) been dialled up. After Trump’s bizarre address, delivered in the United Nations Assembly last week, N.K.’s leader then described Trump as a “mentally deranged dotard”, thereafter an N.K. government member suggested that missiles landing on USA territory was “now an inevitability”. A truly depressing state of affairs, many of us are hoping a grown up will step into the situation, in order prevent this absurd, kindergarten behaviour, escalating into a catastrophe.

USA equities appeared to hit a plateau after last week’s FOMC announcement regarding the unwinding of the Fed’s $4.5 trillion balance sheet and its commitment to raise interest rates several times in 2018 and perhaps once more before 2017 is out. The mood amongst global equity investors appeared to be one of confusion as to where markets may be headed. Equities slipped marginally in the USA towards the end of the week, as did the U.S. dollar and the safe haven appeal of precious metals.

Monday morning witnesses a raft of data from Japan, the stand out metric is the Nikkei PMI for manufacturing, followed later in the morning by the Bank Of Japan’s governor Kuroda making a speech in Osaka.

Later in the morning the Vice President of the ECB will speak in Frankfurt, another ECB official will then deliver a credit management speech in Lisbon early afternoon. Then mid afternoon, Mario Draghi the ECB’s President, will deliver a speech in Brussels. Finally the ECB’s Coeure will hold court in Frankfurt. These four carefully choreographed speeches are no accident, coming shortly after the German election result and the UK P.M.’s Brexit speech delivered on Friday.

Coming so soon after the German elections have taken place, the various German IFO sentiment readings will also be closely monitored, the forecast is for a modest increase, across the three metrics.

In a relatively quiet economic calendar events day for the USA, the key economic news will come from the Dallas Fed’s manufacturing index, expected to take a ripple effect hit, following tropical storm Harvey’s impact in August. The reading is forecast to fall to 11.5 in September, from the 17 figure reported in August.

The day’s key economic news finishes with various detail, regarding New Zealand’s economy. With a hung Parliament result in N.Z.’s election on Saturday, the Kiwi (New Zealand dollar) may experience volatility throughout the day, and further movements upon the release of the data, if it falls short of the forecasts.

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