Tag Archives: Europe & UK

article 3 months old

May Slays The Pound

By Kathleen Brooks, Research Director, City Index

The FX market has spoken, and, as of Sunday night, it is not confident that Theresa May can deliver the necessary clarity and confidence when she lays out her Brexit plans in a speech on Tuesday. GBP/USD fell below the key psychological level of 1.20 at the start of play, suggesting that Theresa “pound slayer” May, could strike once again and we may see further declines in sterling this week.

The details of her speech are set include plans for the UK to leave the single market and the European Customs Union, which are a bit like kryptonite for pound bulls. The FX market has been incredibly sensitive to Brexit since the EU Referendum in June, but now that we have breached this level, where can we go from here?

Could May’s speech actually help GBP?

Tuesday’s speech in London could trigger a “material drop” in the value of the pound, according to one of the PM’s aides, but is the PM calling the market’s bluff? There is an outside chance that May’s speech, if it includes details on what will replace single market access, could actually benefit the pound next week, for three reasons.

Firstly, key Brexiteer, David Davies, has said that it is likely the government will push for a transitional deal to ensure that access to our European trade partners is not stymied during Brexit negotiations. Secondly, the weekend papers also featured comments from the European Union’s lead negotiator who voiced concern about shutting the UK’s financial system out of Europe because of the disruption this could cause to financial markets. Lastly, the City’s lobby group dropped its request for financial “passporting” rights at the end of last week, which suggests to us that they may believe that a better option is available down the line. Thus, Sunday’s breach of 1.20 could be a classic sell the rumour, buy the fact. However, Theresa May will need to give the speech of her life to reverse the wave of negative sentiment towards the pound right now.

Brexit certainty could prove to be the pound’s tonic

It will be an uphill battle for Theresa May to trigger a sustained pound rally this week, especially since Brexit has been a green light to sell sterling. Added to this, markets are once more reducing their long positions in sterling. According to the most recent CFTC data, net long positions in GBP/USD fell to -65.8k last week, vs. -64.7k the week prior. But, and it’s a big but, if she can deliver a level of candidness we have not come to expect from the UK government, this may be enough to slow GBP selling if she can deliver some level of certainty about what Brexit will look like and how the government will cushion any blow from leaving the single market.

GBP/USD on the precipice ahead of May’s speech

Late on Sunday, the market was not favouring the pound, suggesting that May’s foscus on immigration in favour of single market access has been viewed badly by the FX market. GBP/USD was flirting with the psychologically important 1.20 level, which could herald a move back to 1.1841 – the low from October’s flash crash (according to Bloomberg pricing). If Theresa May can’t instil market confidence on Tuesday then the second wave of GBP selling could trigger a move back towards 1.10 in GBP/USD, we would also expect heavy losses in GBP/JPY, and the pound’s recent recovery against the euro is also likely to reverse.

FTSE 100 a silver lining to pound weakness

Conversely, this could be good news for the FTSE 100, which has, so far, been immune to the bad news surrounding Brexit. and reached another record high on Friday. Even the FTSE 250 - which is a stronger reflection of the UK’s economy than the FTSE 100 – was also higher on Friday. This index has generally been tracking the FTSE 100 since December, suggesting that Brexit fears are not clouding investors’ view of the corporate Britain, at least not yet, anyway. We could see further FTSE 100 upside on Monday now that GBP/USD is below 1.20

Elsewhere, on the agenda...

This week we’ll mostly be talking about Burberry results on Wednesday, the ECB meeting on Thursday and, of course, Trump’s inauguration on Friday. May’s speech on Tuesday and her meetings with Chinese officials at Davos this week are also high on our agenda, as they could potentially move UK markets. But as the pound takes a dip at the start of this week, we believe Theresa May has a tough job to convince markets that she can manage a “clean and hard” Brexit, without doing long-term damage to the UK economy.


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Re-published with permission. Views expressed are not by association FNArena's (see our disclaimer).
 
 
Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that FOREX.com is not rendering investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. FOREX.com is regulated by the Commodity Futures Trading Commission (CFTC) in the US, by the Financial Conduct Authority (FCA) in the UK, the Australian Securities and Investment Commission (ASIC) in Australia, and the Financial Services Agency (FSA) in Japan. Please read Characteristics and Risks of Standardized Options (http://www.optionsclearing.com/about/publications/character-risks.jsp).

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article 3 months old

Investors Enjoying Festive Cheer

By Kathleen Brooks, Research Director, City Index

The market is driven by the promise of Trump – more spending, higher growth, faster wage increases and, most importantly of all for some, a reduction in regulation for the US financial sector. The markets are pricing in for a sweet economic scenario from Trump, they will overshoot, they always do, but for now until year-end more record highs are expected.

Financials are King of the Hill

The Dow Jones financial index is at its highest level since 2007, and has retraced more than 75% of its losses since the financial crisis. Under Trump, could we see bank shares return to their pre-crisis highs? The prospect of lower regulation under Trump and higher interest rates, which can boost a bank’s profitability, are driving this powerful rally in financial stocks. Investment banks are also benefitting from trading the financial markets as strong trends emerge in currency and bond markets. On Tuesday Jefferies, the US investment banking firm, announced a quadrupling of profit for Q4 on the back of trading revenue. Although not a top-tier investment bank, it is considered a bell-weather for others including Goldman Sachs and Morgan Stanley.



This is also good news for UK and European banks with IB arms including Deutsche Bank, Barclays and Soc Gen, where expectation is rising for a strong performance for Q4. Thus, we could see an extension of the banking rally, which may be enough to take the Dow above the psychologically important 20,000 level for the first time. Although financials are likely to remain important for US indices next year, there are some risks to its continued strong performance: Firstly, can the banks deliver a strong set of results for full year in 2017? These will be released in Jan and Feb, and there is a lot of expectation, which increases the risk for a downside shock. Secondly, will the US Congress actually pass any reduction of regulation? This is a concern for Q2 and beyond. If Congress isn’t as de-regulation focused as Trump then banking stocks could be in trouble in the second half of next year.

Defense Stocks: Trump not a one-way bet

Now that the Animal Spirits have been unleashed on the markets, it is worth remembering that Trump isn’t universally good news for the markets. Remember his tweet about Boeing? Trump also wants to slash defense spending, which could be bad news for the 31 key defense contractors used by the government, including Lockheed Martin, which relies on government contracts for nearly 80% of its revenue. It’s share price has fallen this month, however, it’s is only down some 7%, so if Trump needs to balance the budget and boost spending by cutting defense costs, Lockheed Martin could be at risk. Also at risk is Northrop Grumann, which relies on the US government for 83% of its revenues. Thus, in these heady times, it is worth remembering that it may not always be a one way bet when it comes to Trump and share prices.

Lloyds’ ballsy call on the UK consumer

Elsewhere, Lloyds bank saw its share price rise nearly 3% on Tuesday, even though its GBP2bn acquisition of credit card company MBNA is a brave call on continued UK consumer strength and has raised some eyebrows. Firstly, some believe that the valuation was too high, secondly, although the consumer credit business has performed well in recent years and bad loan levels are close to record lows, the outlook for consumers is not as rosy going forward as rising inflation and Brexit fears could push up bad debt levels in the UK going forward.

Lloyds may have bought at the high, which could also leave the bank on a collision course with its shareholders, as this purchase puts a potential special dividend in Jeopardy. Lloyds share price has risen strongly this month on the wave of optimism boosting the financial sector (see above). However, now that doubts have been raised about the MBNA purchase, we will be looking to see it knocks the shine off of Lloyds’ share price on Wednesday. But at this stage of the stock market rally, any pullback in financial stocks may be small and used as a buying opportunity.

The above story was originally published after financial markets closed on Tuesday in Europe. Slight amendments have been made to remove a few specific, time sensitive comments.
 
Twitter: http://twitter.com/FOREXcom. Visit the website at www.cityindex.com.

Re-published with permission. Views expressed are not by association FNArena's (see our disclaimer).
 
 
Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that FOREX.com is not rendering investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. FOREX.com is regulated by the Commodity Futures Trading Commission (CFTC) in the US, by the Financial Conduct Authority (FCA) in the UK, the Australian Securities and Investment Commission (ASIC) in Australia, and the Financial Services Agency (FSA) in Japan. Please read Characteristics and Risks of Standardized Options (http://www.optionsclearing.com/about/publications/character-risks.jsp).

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article 3 months old

The Outlook For 2017: International

This story was originally published on 6th December 2016. It has now been re-published to make it available to a wider audience.

Equity strategists and economists provide their views and forecasts for the global economy in 2017.

- Stronger global growth
- Trump offers hope, and risk
- Europe offers political risk
- Emerging markets to outperform


By Greg Peel

Strategists agree on at least one thing in their outlooks for 2017 – it will be a potentially more volatile year than 2016. That’s not particularly comforting for investors given the volatility experienced throughout the year now coming to a close.

2016 began with a collapse in commodity prices, particularly oil, and a collapse in global bank shares, given concerns over the potential bankruptcy of major European banking houses. The counter was a rush to the bottom among central banks in terms of policy easing, compounded by the Fed holding off, and holding off, and holding off again with a rate hike. Yield stock valuations soared globally.

In the middle of the year we had Brexit. No one saw that coming. Commodity prices managed to rebound somewhat on supply-side constraints, before surging ahead once more on Chinese government production restrictions and the anticipation of, and eventual delivery of, OPEC production cuts (effective from January).

Expectations for a Fed rate rise grew and grew thus when the whole Brexit scare proved (so far) to be misguided, we soon saw a violent shift in investor allocation as previously oversold commodity stocks rebounded strongly and previously overbought yield stocks were dumped.

Then along came Trump. No one saw that coming.

As had been the case with regard Brexit, the worst was feared and all and sundry were proved wrong. Trump would of course be great for America. Or at least Wall Street. Presumably.

And strategists are suggesting 2017 is going to be even more volatile?

The buzzwords for 2017 are “political risk”. Not that we haven’t experienced political risk in recent times. We recall that the word that gave us “Brexit” was “Grexit”. We recall that not so long ago, the US government shut down. But 2016 gave us Brexit, and Trump, and possibly a developed market-wide seismic shift in voter perception and power. The workers are revolting, against globalisation, the GFC and what has transpired in the eight years hence.

2016 was the year of Farage, Hanson and Trump, and the Orange by-election. 2017 could be the year of Marine Le Pen and a possible Frexit, another Far Righter in the Netherlands and a possible Nexit, and an Italian comedian offering a possible Italeave. Germany, too, goes to the polls next year.

But before we get to the potential collapse of the EU, we have Trump.

Trump won the US election on policies of building a wall on the Mexican border, locking up Hillary Clinton, tearing up the TPP, NAFTA and the NATO and Pacific alliances, declaring Beijing a “currency manipulator” and whacking a 45% tariff on Chinese imports, while cutting the US corporate tax rate from 35% to 15%.

“Lock her up” went out the window as early as Trump’s victory speech. The Wall will partly be a fence. The Japanese prime minister left New York happy he could work with a Trump presidency. To date, many of Trump’s campaign “promises” appear to have been watered down and the man does not even take office until late January.

Few believe a full 45% tariff on Chinese exports is even remotely likely. A 15% tax is a very long way down from 35%. There is much faith being placed in Trump’s infrastructure intentions, but even if they do ring true, Rome wasn’t built in a day.

In other words, despite a full sweep of houses for the Republicans – upper lower and White – no one is really sure just what a Trump presidency might bring.

Markets do not like uncertainty.

The Global Economy

Morgan Stanley believes the global recovery is likely to gain more momentum in 2017, driven by faster US growth, stable developed market growth and rebounding emerging market momentum. But the strategists warn that while global growth may become more balanced, material risks emanate from fiscal stimulus, faster Fed rate hikes and a wider globalisation backlash.

The good news is global GDP growth should push back towards its historical average, Morgan Stanley suggests, with faster growth in the US and Japan offsetting a slower Europe, and a rebound for commodity-exporting emerging economies offsetting a gradual slowdown for China.

The bad news is the 2017 outlook is subject to material uncertainty, thanks to a new US administration taking office, key ballots in Europe and the formal start of Brexit.

Commonwealth Bank’s economists agree with Morgan Stanley that the global growth rate should move towards its historical average, rising 3.3% in 2017 and 3.5% in 2018 on their forecasts. This is still short of the average of 3.7%, but well above the 2.7% assumed for 2016.

CBA suggests global economic policies, particularly fiscal policies, will spill over into financial markets next year. Already the UK government has announced a large fiscal stimulus package intended to ward off the negativities implied by Brexit. Meanwhile, Donald Trump is expected to “unleash a very large fiscal stimulus” in the US, CBA notes.

The economists also expect Europe to be the centre of political risk.

Citi’s global strategists note “easier” fiscal policy (stimulus) and a shift away from super-accommodative  monetary policy was already underway ahead of the US election but Trump has “potentially supercharged” this theme for 2017-18.

To gauge some idea of what might transpire, Citi is not alone in making the comparison to the last Washington outsider candidate who pledged to “make America great again”, Republican pin-up boy Ronald Reagan. While the period 1980-85 is not, by Citi’s admission, perfectly comparable, that experience suggests bond yields rise and the US dollar rallies well before fiscal deficits actually begin to widen (spending kicks in).

We have already seen substantial moves in both.

Goldman Sachs is another house assuming a pick-up in global growth next year. But Goldman does not believe stronger US growth will do much for asset classes beyond shift the narrative from “low-flation” and monetary accommodation towards reflation and rising rates. This will not change the fact that the trend growth rate of GDP appears to have fallen for both advanced and emerging economies during the post-GFC period.

Meanwhile, valuation levels for equities and especially bonds remain highly elevated by historical standards, Goldman notes, so expected returns appear to be low across most asset classes. In fixed income, yield is scarce, and in equities, growth is scarce.

Many of the fundamental drivers behind declining trends in developed market GDP growth are likely to remain weak for the foreseeable future, the investment bank believes. One of the sustained headwinds for economic growth in recent years has been the declining growth rate of the working age population. Productivity growth is also low, so has been no offset to the demographic drag.

Asset manager Blackrock is of a similar opinion.

Ageing societies, weak productivity growth and high levels of public debt will, in Blackrock’s view, limit the future pace of economic expansion and the ability for central banks to raise rates. The asset manager believes that from today’s depressed level, the average developed market ten-year bond yield will only rise by 50 basis points over the next five years.

On that basis, Blackrock does not see asset valuation multiples, elevated due to low interest rates, reverting to historical averages over the period. Equities should outperform fixed income over that time.

The United States

Morgan Stanley expects the US dollar to “break out” to the upside. Inflation will rise, and the Fed will be forced to tighten monetary policy more rapidly than assumed pre-Trump. While fiscal stimulus will help growth, it must not be forgotten that higher interest rates mean tighter financial conditions.

Current corporate debt levels are unprecedented outside a recession, Morgan Stanley points out. Stronger earnings will help but higher interest rates will not, and “the Fed could push us to the edge quicker”. To justify current Wall Street valuations, investors need to believe in modest growth, support from central banks and low defaults, and not just for the next year.

Markets anticipate defaults one year in advance, Morgan Stanley notes. Lower defaults in 2017 are “in the price”, rising defaults in 2018 are not.

The investment bank is presently tracking 2016 US growth at 1.6% year on year and has lifted its 2017 forecast to 2.0% and introduced an initial 2018 forecast of 2.0%. These numbers are consistent with Fed forecasting.

CBA had been forecasting 1.7% growth in 2017 but has now lifted that to 2.3% and has introduced a 2018 forecast of 2.6%, attributing the strength to “Trump’s fiscal pump-priming”. The economists expect promised cuts to personal and corporate taxes to be delivered in the first half of 2017, driving a pick-up in consumer spending and business investment.

There are nevertheless a couple of caveats.

Most of the value of the cuts to personal income tax will accrue to high income earners with high savings rates, CBA warns. And there is a risk in the form of the inevitable infrastructure time lag – large infrastructure projects are typically complex and take time to implement.

CBA, too, expects the fiscal boost to the US economy when it is already close to full employment will lead to higher inflation, a stronger US dollar and higher interest rates. The economists expect the Fed to lift its funds rate range by 50 basis points in 2017, to 1.00-1.25%, and another 50 in 2018, to 1.50-1.75%.

Goldman Sachs expects four Fed rate rises between now and end-2017.

These forecasts are in line with Morgan Stanley’s expectations of a “quicker” Fed. Prior to Trump’s election, and backed by constant talk from the Fed of “gradual” tightening and running the US economy “hot”, markets were pencilling in one 25 basis point hike in each of 2016, 2017 and 2018.

Morgan Stanley has retained its pre-Trump US stock market forecast, suggesting a base case 2300 for the S&P500 in twelve months (current level circa 2200). However the strategists now see more upside to their bull case than downside to their bear case. The same 2300 target is reached on a combination of a stronger earnings forecast and a lower PE multiple forecast, which the strategists see as “prudent”.

Morgan Stanley is the first to admit it had a bad year in 2016, following five consecutive years of portfolio outperformance. The strategists were caught out by “huge factor reversals, crowding and unwinds”, despite their overall market call a year ago proving to be quite accurate. Many an investor will have been caught in the same violently revolving door of rapid asset reallocation.

The strategists expect uncertainty and volatility will be a greater threat in 2017 given the Republican Sweep and impact this will clearly have on some policies. Big changes to interest rates, or moves in the US dollar or oil, and a different policy outlook will have a dramatic impact upon which market segments lead and lag the overall index. The strategists gut instinct is to “fade” current optimism about reflation and be prepared for a bit of legislative gridlock, despite the Republican Congressional majority, relative to current consensus banter.

“Fading” is trader-speak for incrementally selling into, or taking profits on, a rising market. Morgan Stanley’s best guess is to stay long the reflation trade until close to Trump’s inauguration and then fade it sometime after that.

China

Trump’s 2016 election shocked the world. In 2017, a five-year change to China’s top leadership team will take place, followed by a five-yearly government reshuffle in 2018. While there is little doubt ultimate leader Xi Jinping will be granted another go-round, the make-up rest of the seven member leadership team is considerably uncertain.

These pending changes should keep Chinese policy-makers risk averse in the meantime, CBA suggests, given no one wants questions raised over his/her running of the world’s second largest economy.

CBA is forecasting 6.8% GDP growth for China in 2017, slightly better than 2016’s expected 6.7%, and above consensus of 6.4%. Growth is then expected to moderate to 6.6% in 2018 as China gradually converges towards slower structural growth rates.

Heading into 2017, the Chinese economy should be boosted by a lower exchange rate and a stronger US economy providing support to export growth, CBA suggests. Import growth should remain moderate due to a cooling housing market and easing consumer spending. A big spike in government expenditure in 2016 should be dialled back in 2017.

Of course there remains one small issue that leads the CBA economists to warn the risk to their 2017 forecasts lay clearly to the downside. If Trump does indeed follow through with threats to name China as a currency manipulator and imposes a 45% tariff on imports from China, it could reduce China’s GDP by a full percentage point in the first year.

But if there is a major disruption to global trade flows, CBA would expect the Chinese government to renew policy easing to support economic growth.

Morgan Stanley’s strategists have lifted their rating on China to Overweight from Underweight.

Europe and the UK

In the wake of Brexit, the European economy has proven to be resilient, Morgan Stanley notes. Morgan Stanley is forecasting 1.4% GDP growth for the eurozone in 2017 and 1.6% in 2018. Slower consumer spending and sluggish investment activity will be offset by stronger net exports, thanks to the weaker euro, and stronger global demand.

The combination of a higher oil price and weaker euro will push European headline inflation materially higher, Morgan Stanley suggests, while core (ex food & energy) inflation will rise more gradually. The ECB will likely extend its bond buying program (QE) for another six months to September 2017 while leaving its cash rate unchanged, before “tapering” purchases thereafter.

CBA’s economists agree the lower euro will provide for stronger European exports, as will a stronger US economy. Some 14% of European exports are destined for the US. But household spending will remain resilient and business investment will further improve, in CBA’s opinion, leading to faster GDP growth than the ECB’s forecasts of 1.6% in each of 2017-18.

Once again, all forecasts come with the caveat of political risk.

CBA does not believe the ECB will increase easing measures in 2017, rather the central bank will begin tapering in the September quarter.

CBA does believe the much lower pound will crimp household spending and business investment in the UK, while improving net exports. Brexit uncertainty will also contribute to restraint. The Bank of England is forecasting a slowing in UK economic growth to 1.4% in 2017 and 1.5% in 2018, but given the UK government’s recently announced fiscal stimulus package, CBA forecasts a more confident 1.6% in both years.

Japan

Morgan Stanley believes stronger global growth in 2017 will be led by the US and Japan, with the weaker yen against the stronger US dollar proving supportive for the latter. The Bank of Japan is forecasting 1.3% GDP growth in 2017 and 0.9% in 2018, which in Japan’s case can be considered “strong”.

CBA agrees the Japanese economy will see strength next year thanks to modest further cuts in the Bank of Japan’s cash rate and further fiscal stimulus from the government. The BoJ will nevertheless be wary of cutting its cash rate too much further into the negative given the effect on pension returns.

Which brings us back to the developed world problem of an ageing population. Nowhere is this as more pronounced than in Japan. CBA’s GDP forecasts for Japan are lower than those of the BoJ – 0.9% in 2017 and 0.6% in 2018 – given an economic recovery cannot be sustained without a larger lift in real wages.

India

And now for the good news.

Back in the noughties, when the commodity super-cycle prevailed, India was invariably mentioned in the same breath as China as the new frontiers of global growth. But in the meantime India has wavered China has completely stolen the spotlight, through economic boom to globally influential slowdown.

The Reserve Bank of India is forecasting 7.9% growth in fiscal year 2017-18, up from 7.6% in 2016-17, in line with the CBA economists’ forecasts. If accurate, India would be the fastest growing economy in the world.

Unlike the developed world, India does not suffer from an ageing population. Solid growth in wages is leading to robust consumer spending, CBA notes, and the introduction of a GST should boost business confidence and investment, albeit low capacity utilisation and funding constraints will provide headwinds.

Morgan Stanley’s strategists have India as their “largest Overweight”. They believe concerns over India’s de-monetisation have been overdone.

While the Indian government could not be accused of being smooth operators when it comes to the recent assault on India’s black market cash economy, the combination, via banknote reissuance and banking sector initiatives, of forcing billions of rupees into the real economy and providing banking facilities for poorer regional areas for the first time should provide a significant boost to the Indian economy, it is generally believed.


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article 3 months old

Next Week At A Glance

For a more comprehensive preview of next week's events, please refer to "The Monday Report", published each Monday morning. For all economic data release dates, ex-div dates and times and other relevant information, please refer to the FNArena Calendar.


By Greg Peel

It is quite possible next week’s Fed meeting proves the biggest non-event of a very eventful year. The world has fully priced in a rate hike, so not a lot will happen if the Fed delivers. Of interest will nevertheless be the FOMC’s projections beyond 2017, and Janet Yellen’s first press conference since the election. What will the Trump factor imply for policy ahead?

There’s also quite a bit of US data due next week. Now that a rate hike is assumed, data can be actually assessed on their worth rather than on how the central bank might respond. Next week sees industrial production, inventories, retail sales, inflation, housing sentiment and starts, and the Empire State and Philly Fed activity indices.

Next Friday is a quadruple witching derivatives expiry.

China will release industrial production, retail sales and fixed asset investment numbers.

The Bank of England will hold a policy meeting next week.

In Australia the focus will be on the monthly jobs lottery, along with the NAB business and Westpac consumer confidence surveys.

Australia will also see a “witching” next Thursday as index derivatives expire.

There’s also a late run of AGMs later in the week, most notably those of ANZ Bank ((ANZ)) and National Bank ((NAB)).
 

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article 3 months old

ECB: Alice In Wonderland

By Kathleen Brooks, Research Director, City Index

Mario Draghi spent most of the press conference [following last night's ECB policy meeting] trying to convince the audience that tapering doesn’t actually exist, and even if it did it wasn’t on the ECB’s table. Draghi and co. at the ECB is reducing the size of its asset purchases to EUR 60bn a month from April, even if it is extending the length of time it makes purchases through to December next year. Nice try Draghi, the ECB has tapered - except tapering is now called calibration, and calibration isn’t nearly as nasty as tapering, so the euro fell, stocks rallied and German bond yields backed off their earlier highs.

The key message from Draghi is that the ECB will be in the market for a long time to come, all we know is that they will be there until at least December next year. This increase in the ECB’s balance sheet, especially in the face of a Fed rate hike next week, is mildly euro negative, however, today’s decision is probably not enough to send EUR/USD back to parity.

The ECB: A financial version of Alice in Wonderland

The ECB had to change its standards for bond purchases to ensure that its QE programme did not disrupt the debt markets. It will now include bond purchases below its own deposit rate, which is already -0.4%. Thus, the ECB will be paying to hold some bonds that will be included in its QE programme. The craziness doesn’t stop there, some of those bonds have a negative yield because of the ECB’s QE programme in the first place. This meeting has been like a financial version of Alice in Wonderland.

The ECB has had to buy negative yielding bonds because it has bought all the eligible higher yielding stuff, so it has no choice. Essentially this is the market-moving news as it may mean lower yields for longer, which could be bad news for banks, who see their profitability dip in a negative yield environment. Thus, the rally in European bank stocks in recent days, could be cut short at some stage on the back of this meeting.

Other takeaways from this meeting included:

* · Draghi admits that there is a limit to what the ECB can do to assuage political risks.

* · The growth outlook is broadly unchanged: 1.7% for this year, 1.6% for 2018/19.

* · Inflation is expected to rise only to 1.7% by 2019.

* · Draghi continued to put pressure on Eurozone governments to reform to boost growth.

* · The ECB’s QE programme remains flexible.

The market impact:

• The initial reaction is euro negative, EURUSD has dropped to its lowest level since Monday, and is currently testing 1.0650. We don’t think that this meeting is enough to push EUR/USD to parity, in fact, we continue to think that if the market changes its view that calibration is a form of mild tapering then we could see a turnaround in EURUSD, and it may test 1.0930 – the 38.2% retracement of the May – December decline in EURUSD.

• But, the upside for the euro could be limited as European bond yields may struggle to push significantly higher from here due to the ECB’s plan to accept bonds that yield lower than -0.4% going forward. This suggests to us that the era of negative rates could be with us for some time yet.

• A fall in the euro should be good news for stocks. The Eurostoxx index has risen sharply since Draghi started speaking, even Deutsche bank has rallied on a wave of QE-euphoria. We are not sure that Europe’s banks can sustain this rally, even if the Eurostoxx banking sector is at its highest level since January. Overall, a negative interest rate environment is not conducive for bank profits next year. But, you can’t be hasty to ditch European banks, as the strong bullish market in the US is a powerful force, and the prospect of more liquidity than expected from the ECB could keep banks buoyed for longer than is fundamentally justified. But, any signs of weakness in Europe’s banks could lead to a sharp sell-off in the coming weeks.

Conclusion:

Overall, 2017 will usher in a new era for ECB policy, one where it has admitted it wants a long-term presence in financial markets to depress yields. Unless we see a sharp upturn in growth and inflation, then the Eurozone is likely to remain in second place to the buzzy US economy. It remains saddled with debt, bad banks and political risks, which could make it a tricky environment for some time to come. This makes it hard to get too excited about the euro, and is another reason why the dollar should keep its crown as the King of FX and the world’s most important reserve currency for some time to come.

 
Now you can follow us on Twitter: http://twitter.com/FOREXcom. Visit the website at www.cityindex.com.

Re-published with permission. Views expressed are not by association FNArena's (see our disclaimer).
 
 
Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that FOREX.com is not rendering investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. FOREX.com is regulated by the Commodity Futures Trading Commission (CFTC) in the US, by the Financial Conduct Authority (FCA) in the UK, the Australian Securities and Investment Commission (ASIC) in Australia, and the Financial Services Agency (FSA) in Japan. Please read Characteristics and Risks of Standardized Options (http://www.optionsclearing.com/about/publications/character-risks.jsp).

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article 3 months old

Saxo Bank’s Outrageous Predictions

A summary of Saxo Bank's annual report on its ten "outrageous" predictions for 2017. Are they that outrageous?

-Trump sends US yields soaring
-Brexit doesn't happen
-Bitcoin ascends
-EU banks buckle

By Eva Brocklehurst

It is that time of year when Saxo Bank delivers its ten outrageous predictions for 2017. As usual, the selection aims to provoke discussion on what might surprise or shock investors in the year ahead. The predictions are not an official market outlook but are deemed possible events which have the potential to upset consensus views.

2016 will become known as the year where reality managed to surpass even seemingly unlikely calls, such as the UK vote to leave the European Union (Brexit) and the election of Donald Trump as the US president.

Saxo Bank's chief economist, Steen Jakobsen, believes 2017 could be a wake-up call, with a departure from business as usual, both in terms of expansionary policies by central banks and austerity policies from governments which have characterised the period post the global financial crisis. In this spirit the following are offered as the most outrageous predictions for 2017.

China

Number one involves China's GDP. China comprehends it has reached the end of its manufacturing and infrastructure growth phase and, through a massive stimulus of fiscal and monetary policies, opens up capital markets to steer a transition to consumption-led growth. This results in 8% growth in 2017. Euphoria over private consumption-led growth pushes the Shanghai Composite index to double its 2016 levels and surpass 5,000.

US Federal Reserve

As US dollar and interest rates rise, the fiscal policies of President Donald Trump cause the US 10-year bond yields to reach 3%, creating market panic. In this second outrageous prediction , on the verge of disaster, the US Federal Reserve limits 10-year yields to 1.5%, effectively introducing an endless quantitative easing. This provokes a sell-off in global equity and bond markets, leading to the biggest gain for bond prices in seven years.

High-yield Rates

At number three, long-term average default rates for high-yield bonds rise as high as 25%. As the limits of central-bank intervention are reached, governments around the world move towards fiscal stimulus and yield curves dramatically steepen. As trillions of corporate bonds are trashed, the problem is exacerbated by rotation away from bond funds, which widens spreads and makes refinancing of low-grade debt impossible.

No Brexit

The fall-out from Brexit creates a more disciplined EU leadership and a more cooperative stance towards the UK. In the fourth prediction, the EU makes key concessions on immigration and passport rights for the UK-based financial services firms. By the time Article 50 is triggered, Brexit is turned down in favour of the new deal. The UK stays within the EU and the Bank of England raises its rate to 0.5%. The EUR/GBP slumps to 0.7300.

Copper

Number five is about copper. Copper was a clear commodity winner following the US election and in 2017 the market begins to realise the new president will struggle to deliver promised investments and the increased demand expected for copper fails to materialise. President Trump turns up the volume on protectionism as a result and introduces trade barriers, spelling trouble for emerging markets as well as Europe.

Global growth weakens and China's demand for industrial metal slows, as it moves towards more consumption-led growth. Having breached trend line support, copper descends all the way back to 2002 prices of US$2/lb and a wave of speculative selling then sends it down to the 2009 financial crisis low of US$1.25/lb.

Bitcoin

President Trump spending increases the US budget deficit to US$1.2-1.8 trillion and this causes growth and inflation to skyrocket. The Federal Reserve accelerates its rate hike agenda and the US dollar reaches new highs. China starts looking for alternatives to a system dominated by the US dollar and its over-reliance on US monetary policy.

This leads to an increased popularity of currency alternatives and Bitcoin benefits the most, as leading banking systems move to accept Bitcoin as a part alternative to the US dollar. It triples in value to US$2100 from US$700.

US Health Care

Seventh on the list is healthcare expenditure in the US, at around 17% of GDP versus the world average of 10%. An initial relief rally in health care stocks after President Trump's victory quickly fades in 2017, as investors realise the administration will not go easy on health care and lodges sweeping reforms of the unproductive system. The healthcare sector plunges, ending the most spectacular bull market in US equities since the financial crisis.

Mexico and Canada

The market has drastically overestimated President Trump's true intention, or ability to crackdown on trade with Mexico, allowing the beaten down peso to surge. Meanwhile, Canada's higher interest rates initiate a credit crunch in the housing market and the banks buckle, forcing Bank of Canada into quantitative easing and injecting capital into the financial system.

Additionally, the Canadian dollar underperforms as Canadians enjoy far less of the US growth resurgence than they would have had in the past, because of the long-standing decay in the manufacturing base, as a result of globalisation and an excessively strong currency. The CAD/MXN corrects as much as 30% from 2016 highs.

EU Banks

German banks are caught up in the spiral of negative interest rates and flat yield curves and cannot access capital markets. In the EU framework a German bank bail-out inevitably means an EU bank bail-out. This is not a moment too soon for Italian banks which are saddled with non-performing loans and a stagnant local economy. A new guarantee allows the banking system to recapitalise and a European bad debt bank is established to clean up the balance sheet of the eurozone. Italian bank stocks rally more than 100%.

EU Stimulus Bonds

Finally number ten, where faced with success of populist parties in Europe and a dramatic victory for Geert Wilders far-right party in the Netherlands, traditional political parties begin moving away from austerity policies and favour Keynesian policies similar to those launched by US President Roosevelt post the 1929 crisis.

The EU lodges a stimulus package but to avoid dilution resulting from an increase in imports announces the issuance of EU bonds, at first geared towards EUR1 trillion of infrastructure investment, reinforcing the integration of the region and putting capital flows back into the EU.
 

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article 3 months old

More Pizza, Fewer Banks For Italy, Please…

Kathleen Brooks of City Index discusses why one small Italian bank could offer more substantial market risk than the referendum result.
 

By Kathleen Brooks, Research Director, City Index

So, Italian Prime Minister Renzi didn’t get to resign as he had planned to on Monday. Instead he’s been asked to stay on until after the Budget vote. This isn’t really significant for markets, he will go, we just don’t know when at this stage. After that it is likely that a coalition of centre-left and centre-right will come together to form a temporary government in an attempt to block the radical Five Star Movement from power. Of far more importance on Tuesday is the fate of Italy’s banks.

Some rare good news for Monte dei Paschi

The world’s oldest bank managed to swap over EUR 1bn of bonds into equity yesterday. This is where the good news ends, it is still looking for EUR 1bn in capital from the Qataris’, and without Doha as the anchor investor in this much-needed capital raising it is hard to see how Monte dei Paschi can avoid nationalisation. There have been reports that the bank is getting ready for some form of nationalisation at the weekend, so the clock is ticking for Italy’s third largest lender.

Why do Italian banks matter?

I often get asked why Monte dei Paschi matters for financial markets and risk sentiment, it’s certainly not as systemically important as other banks, for example Italy’s Unicredit, but Monte dei Paschi’s main problem is that it has become symbolic of Italy’s rotten banking sector that now relies on foreign capital for life support. If the Qatari’s decide against investing in it then it gives a terrible signal to the world about the ‘investability’ of Europe’s banks. Interestingly, in Europe it is not the systemically important banks that are the biggest risk to the financial sector, but the glut of mid-size banks that hold billions in bad debts that could endanger the health of the bigger banks in Europe, if contagion is to spread.

Bag a bargain, invest in Unicredit

Unicredit, Italy’s largest bank, is less of a concern, in our view. It also needs to raise EUR 13bn in capital, but its global reach, size and scope makes it a much more attractive option for foreign investors, such as rich Middle Eastern sovereign wealth funds. In fact, its weak share price - Unicredit has seen its stock price fall more than 60% in the past year - could make it an even more attractive option for investors with deep pockets, as it looks cheap. On Monday, Unicredit managed to sell its asset management arm, Pioneer, to France’s Amundi for more than EUR 3bn, which helped to limit its share price sell-off yesterday afternoon. Its CEO has said that it will update its capital raising plans on 13th December, if this contains positive news, then the markets could have hope that the big hitters in Italy’s financial system can whether the political storm.

More pizza and less banks

If Monte dei Paschi can’t attract foreign investors to boost its capital base then we would expect a sweetened nationalisation, something that protects the retail investors that hold the bulk of the bank’s bonds. This may not be what the EU had in mind when it envisioned banking union, but it will help stabilise the transition of power to Italy’s new government once Renzi resigns. Developments this weekend are worth watching. As we have said before, Europe would be mad to let Italy’s banks go to the wall, but that doesn’t mean that it needs to shut down some banks. Italy has more bank branches than pizzerias, in the future it desperately needs more pizza and less banks!
Interestingly, the investment world has known about the capital issues at Monte dei Paschi and other banks for some months, so why is it getting cold feet now; after all, the bank is in no worse shape now compared to where it was on Friday, ahead of the referendum. The reason is that bankers tend to see political events through a financial lens, hence why a No vote was considered so toxic to Monte dei Paschi’s attempts to woo the Qatari’s.

Why we haven’t seen risk sentiment fall off a cliff

In terms of the market reaction, the EUR has backed away from the 1.0770 high from earlier, but it remains in a strong position in the G10 FX space, and the reaction to the referendum has generally been mild. If Monte dei Paschi fails to attract investment from the Qataris’ then we could see the wind knocked out of the euro’s sails, however, we would still expect EURUSD to stay above 1.0500 in the short term. Likewise, Italian bond yields could also rise again, although we don’t expect to see the levels of panic in the Italian bond market like we did in 2012. Political risk matters, but as long as Italy’s banking sector can scrape together some foreign investment, mixed with a sweetened nationalised deal for Monte dei Paschi then we can’t see how Italy’s political woes can have anything other than a temporary impact on risk sentiment in global financial markets.

 
Now you can follow us on Twitter: http://twitter.com/FOREXcom. Visit the website at www.cityindex.com.

Re-published with permission. Views expressed are not by association FNArena's (see our disclaimer).
 
 
Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that FOREX.com is not rendering investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. FOREX.com is regulated by the Commodity Futures Trading Commission (CFTC) in the US, by the Financial Conduct Authority (FCA) in the UK, the Australian Securities and Investment Commission (ASIC) in Australia, and the Financial Services Agency (FSA) in Japan. Please read Characteristics and Risks of Standardized Options (http://www.optionsclearing.com/about/publications/character-risks.jsp).

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article 3 months old

Not Yet Italy’s Brexit Moment

By Kathleen Brooks, Research Director, City Index

Italy’s Prime minister has suffered a crushing defeat in today’s constitutional referendum. The No camp appears to have won by an impressive 60% to 40% on a very high turnout. Renzi will resign tomorrow, it will then be up to the President to try and form a government in the next 70 days, otherwise the Italians will be heading back to the polls to vote for a new Prime Minister at some point in Q1.

Could there be a Trump moment for European markets?

The euro initially plunged to a low of 1.0506 on the back of the result of this vote, to its lowest level since 2015. However, there have been some early signs of stabilisation in the FX market since Renzi announced that he is resigning. Could there be a Trump moment for markets? And after an initial sell off, selling pressure could start to ease.

Will the ECB cut rates this week?

We will have to see how the markets will react to this decision on Monday [night], but could the prospect of further rate cuts from the ECB, who meet this week, actually boost risky assets in the next few days? While the markets are likely to remain nervous as we start a new week, they haven’t fallen of a cliff, so far. Either markets are becoming immune to political risk, or they are taking the view that the Italian issue will be a slow-burner, even if the President can’t form a government, he still has 70 days to try and that seems quite far away at this stage.

It’s all about the banks, the banks, the banks…

However, Italy’s banks don’t have time to waste to try and boost their capital buffers. A win for the Yes camp in this referendum could have seen investors help to recapitalise the banks, however, it is unknown whether investors will do so now that the No camp have prevailed. Without a sitting government, will there be official help for Italy’s beleaguered banking sector?

Another cause for concern is Europe’s wider banking sector, including Deutsche Bank. Negative interest rates from the ECB have hurt banks’ profitability in Europe. If the ECB does cut rates further into negative territory this week then we could see broad-based declines for Europe’s banking sector in the coming weeks.

So far, this is not Italy’s Brexit moment

There is still a risk that this decision could trigger nervousness in financial markets, but for now at least, this does not appear to be the euro’s Brexit moment. We believe that the market reaction to this result could be a slow-burner, but that the outcome of this referendum is another reason to sell the euro for the long term, and avoid European stocks. Europe’s banking sector is the weakest link, however the European authorities would be mad to let Italy’s banking sector go to the wall just because there is no government in place in Rome. The markets aren’t pricing in the possibility of an Italian banking collapse so far on Sunday night, which could limit the downside for the euro on Monday.

Overall, the subdued reaction from the early market open suggests that the market is not pricing in the prospect of a Beppe Grillo led Five-Star Movement government, or an Italian EU referendum, at least not yet, anyway.

Ahead, we also have the result of the UK government’s appeal to the Supreme Court on the Article 50 decision. We will also be watching closely for any further fallout from the No vote in the Italian referendum; and any developments regarding the banking sector and the forming of a temporary government.

 
Now you can follow us on Twitter: http://twitter.com/FOREXcom. Visit the website at www.cityindex.com.

Re-published with permission. Views expressed are not by association FNArena's (see our disclaimer).
 
 
Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that FOREX.com is not rendering investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. FOREX.com is regulated by the Commodity Futures Trading Commission (CFTC) in the US, by the Financial Conduct Authority (FCA) in the UK, the Australian Securities and Investment Commission (ASIC) in Australia, and the Financial Services Agency (FSA) in Japan. Please read Characteristics and Risks of Standardized Options (http://www.optionsclearing.com/about/publications/character-risks.jsp).

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article 3 months old

Next Week At A Glance

For a more comprehensive preview of next week's events, please refer to "The Monday Report", published each Monday morning. For all economic data release dates, ex-div dates and times and other relevant information, please refer to the FNArena Calendar.


By Greg Peel

The local AGM season takes a bit of a breather until later in the week next week but from Thursday they start to come thick and fast once more.

There are still some straggler production reports to get through from the resource sectors and quarterly updates from the likes of Qantas ((QAN)) and REA Group ((REA)). There are also a further handful of earnings results.

CSR ((CSR)), Orica ((ORI)), BT Investment Management ((BTT)) and Xero ((XRO)) are all in the frame next week but the biggie in ANZ Bank ((ANZ)) on Thursday.

There are no corporate events on Tuesday that do not involve lunch and empty afternoon offices, being Cup Day. Victoria is of course shut, in case anyone doesn’t notice. The all-important Rate That Stops The Nation will still go ahead as usual, but all the money is on the favourite, No Cut.

It’s a relatively busy week for economic data with private sector credit, building approvals, the trade balance and manufacturing and services PMIs all due. After the meeting on Tuesday, the RBA will release its quarterly Statement on Monetary Policy on Friday.

As Tuesday is the first on the month, manufacturing PMIs will be published across the globe and services on Thursday, except for China’s official number which both land on the Tuesday.

Tonight’s US GDP release will be important in determining whether the odds of a December Fed rate hike will shift from a current 70% and so too will be Monday’s release of the personal consumption expenditure measure of inflation. In case anyone doesn’t realise, the Fed actually meets on Tuesday night, but few expect a pre-election rate hike (17%).

Other US data releases across the week include the Chicago PMI, personal income & spending, construction spending, vehicle sales, chain store sales, factory orders, trade and September quarter productivity. And being the first week of the month, the private sector jobs report is out on Wednesday and non-farm payrolls on Friday.

The Bank of Japan also holds a policy meeting on Tuesday. The Bank of England will wait until Thursday.

The eurozone’s September quarter GDP result is out on Monday.
 

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article 3 months old

Next Week At A Glance

For a more comprehensive preview of next week's events, please refer to "The Monday Report", published each Monday morning. For all economic data release dates, ex-div dates and times and other relevant information, please refer to the FNArena Calendar.


By Greg Peel

If you think this week was a busy one for local corporate AGMs, you ain’t seen nothing yet. Next week brings an avalanche. The bigger miners and energy companies have reported quarterly production but there are still plenty of smaller reporters ahead next week as well.

We’ll also see quarterly sales numbers from Wesfarmers ((WES)) and Woolworths ((WOW)) and quarterly earnings from ResMed ((RMD)). But most importantly, National Bank ((NAB)) kicks off the bank reporting season on Thursday, followed by Macquarie Group ((MQG)) on Friday.

While there’s not a lot of local data releases due next week what there is is critical. The RBA will be closely watching next week’s September quarter CPI numbers.

The Fed will be in focus next Friday when the first estimate of US September quarter GDP is released. Ahead of that, the week will bring monthly numbers for US consumer confidence, house prices, home sales, trade, durable goods, flash PMI estimates and the Richmond Fed and Chicago Fed national activity indices.

There will also be a lot of interest in the UK GDP result on Thursday.

New Zealand has a public holiday on Monday so Richie McCaw can release his new documentary “My Life Offside”.


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