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Market Outlook- The Week that Was and the Week Ahead


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Key Macroeconomic Data for the week ahead

Monday, 13 th November:

  • N/A

Tuesday, 14 th November:

  • China Industrial Production y/y (Oct)
  • German GDP q/q (Q3) Prelim
  • UK CPI y/y (Oct)
  • German ZEW Economic Sentiment (Nov)
  • S PPI m/m (Oct)

Wednesday, 15 th November:

  • Japan GDP q/q (Q3)
  • UK Average Earnings Index + Bonus (Sep)
  • UK Claimant Count Change (Oct)
  • S Core CPI m/m (Oct)
  • S Core Retail Sales m/m (Oct)
  • S Retail Sales m/m (Oct)

Thursday, 16 th November:

  • Australia Employment Change (Oct)
  • Eurozone CPI y/y (Oct)
  • Philly FED Manufacturing Index (Nov)

Friday, 17 th November:

  • S Building Permits (Oct)
  • Canada Core CPI m/m (Oct)

Currency Majors

Current ValueΔ Current Week, %Δ Current Month, %ΔYTD, %ΔYoY, %
EUR/USD1.164100.49%0.16%10.92%7.09%
GBP/USD1.307900.91%-0.65%6.94%5.11%
USD/CHF0.99760-0.46%-0.15%-2.25%0.94%
USD/JPY113.37000-0.47%-0.10%-2.93%6.27%
AUD/USD0.764500.14%0.07%6.28%0.63%

 Source Bloomberg as at 13 th November 2017

Commodities

Current ValueΔ Current Week, %Δ Current Month, %ΔYTD, %ΔYoY, %
Gold Spot1,275.070.41%0.28%11.12%3.86%
WTI Crude56.741.98%4.34%5.62%30.71%
Brent Crude63.522.34%3.50%11.79%41.94%
Bloomberg Commodity Index177.830.49%1.30%0.50%6.84%

Geo-Political Risk

Spain & UK

Germany

The key risk remains the possible threat of a new election. Progress will need to be made on Monday between the three parties for the markets to avoid a panic over the near-term.

Middle East

The markets will need to keep a close eye on the Middle East as the Saudis look to take on Lebanon and ultimately Iran. Reports have suggested that the Saudis forced the resignation of Lebanon Prime Minister Hariri and Hezbollah have accused the Saudis of declaring war on the nation. All of this started from a missile fired by Hezbollah at Riyadh the weekend prior, with the Saudis accusing Iran of having supplied the missile. Any escalation will see markets go into defensive mode, whilst oil prices would be on the rise oversupply worries.

Equities

Key Benchmarks
Current ValueΔ Current Week, %Δ Current Month, %ΔYTD, %ΔYoY, %
Dow Jones23,422.21-0.50%0.19%18.52%24.27%
S&P5002,582.30-0.21%0.27%15.34%19.31%
EURO Stoxx 503,593.76-2.61%-2.18%9.22%18.61%
FTSE1007,432.99-1.68%-0.80%4.06%10.44%
DAX13,127.47-2.61%-1.29%14.34%23.06%
CAC 405,380.72-2.49%-2.23%10.66%19.86%
Nikkei 22522,681.420.63%3.04%18.66%30.54%
Hang Seng29,120.921.81%3.10%32.36%29.25%
ASX2006,029.371.17%2.04%6.42%12.26%
CSI3004,111.912.99%2.63%24.22%20.33%

Source Bloomberg as at 10 th November 2017

 Eurozone Equities (DAX; CAC; EuroStoxx50)

  • Macroeconomic Data for the week ahead (Neutral)

Monday

  • N/A

Tuesday

  • German Industrial Production m/m (Sep)
  • German CPI m/m (Oct) Final
  • German GDP q/q (Q3) Prelim
  • German GDP y/y (Q3) Prelim
  • Spanish CPI y/y (Oct) Final
  • Spanish HICP y/y (Oct) Final
  • Italian CPI m/m (Oct) Final
  • German ZEW Current Conditions (Nov)
  • German ZEW Economic Sentiment (Nov)
  • Eurozone ZEW Economic Sentiment (Nov)
  • Eurozone GDP y/y (Q3) 2nd Estimate
  • Eurozone GDP q/q (Q3) 2nd Estimate
  • Eurozone Industrial Production m/m (Sep)

Wednesday

  • French CPI m/m (Oct) Final
  • French HICP m/m (Oct) Final
  • Eurozone Trade Balance (Sep)

Thursday

  • Eurozone Core CPI y/y (Oct)
  • Eurozone CPI m/m (Oct)
  • Eurozone CPI y/y (Oct)

Friday

  • N/A

European equities slumped in the last week, with the EuroStoxx50 and DAX each giving up 2.61% and the CAC ending the week down 2.49%, with all three being dragged into the red for the current month. The declines in the week were the worst in 3-months and there appeared to be a lack of support at the end of the week, in spite of the losses and some apparent value on offer.

The bias was down for much of the week, with earnings and the EUR the key contributors to the downside. Financial stocks took quite a beating through the week, with Commerzbank earnings weighing on the sector through the early part of the week. ECB monetary policy continues to weigh on the banking sector, with the upbeat economic momentum doing little to boost earnings, as net interest margins remain under pressure.

Commerzbank ( DE ) managed to close the week in positive territory despite the earnings miss, with the bank's anticipated turnaround this year supporting the stock.

Other gains in the sector included UniCredit Bank (UCG:MI), which closed out the week in positive territory, with BNP Paribas (BNP:FP) flat .

Gains in the EUR were limited to 0.49% for the week, but with the combined effects of poor earnings results, a stronger EUR and the shift in market sentiment towards tax reforms, profit taking was high on the agenda.

On the earnings numbers, of the 78% of companies listed on the Stoxx600, EPS growth has slowed from 26% in the first quarter of this year to 7.6% in the 3 rd . In the second quarter, EPS growth was 18%. If the markets were looking for any more negative numbers on the earnings results, only 51% of companies' earnings came in ahead of forecasts, which is the worst since the final quarter of 2015. The disappointment was attributed to exporters, where less than 50% saw earnings come in ahead of forecasts for the quarter.

On the dating front, it was a relatively quiet week. Of greatest concern for the markets would have been the fall in German industrial production in September and a decline in exports, while imports saw a larger decline leading to a widening of the trade surplus. The good news was a rise in factory orders, which suggests that September was a blip in the continued recovery.

For the markets, the EU Economic forecasts and ECB Economic Bulletin should have been positive for the equity markets, with growth for the Eurozone being revised upwards for this year and the next 2-years, particularly when factoring in the soft inflation outlook and current monetary policy environment and outlook.

Outside of Europe, other influences aside from the consensus on tax reforms included China's trade figures for October, which continued to show strong demand for goods and raw materials, with imports surging by another 17.2%. While exports rose by just 6.9%, the markets were happy with the demand side, particularly with Trump in the region, a widening in the trade surplus is quite timely.

Trump's positive summation of his meetings with Chinese Premier Xi did not go unnoticed, with any concerns of punitive trade tariffs being quashed on Thursday. The sell-off could have been considerably worse had there been talks of tariffs, especially when considering the fact that Trump had already singled out Germany as a nation benefiting from unfair trade terms.

Oil prices also gained through the week, with Brent up 2.34% to $63.52 as the markets begin to consider $80 plus levels, though the upside in crude was not enough for Total (FP:FP) to move into positive territory for the week.

Geopolitical risk certainly contributed to the gains in crude, with the Saudis looking ready to lock horns with Iran and the Hezbollah as the Shia Sunni divide begins to heat up. (See Political Risk section for more details).

The week ahead

It's a busy week ahead on the data front, with key stats out of the Eurozone certainly expected to provide the EUR with some much-needed direction, following the ECB -tapering sell-off.

While Tuesday is the big day on the stats, the Eurozone's inflation figures on Thursday will be watched closely. Draghi had recently suggested that inflation was likely to begin accelerating in the near future. Such an outcome would certainly force the markets to reconsider ECB monetary policy, with any shift a negative for the markets, particularly when considering the fact that the EUR has become a funding currency.

Data out of China will also be of relevance, with China's industrial production number of particular relevance.

The markets will need to keep an eye on the storm brewing in the Middle East, however, with any hint of a war between the two sides likely to cause a more material pullback in the equity markets and a bounce in the EUR.

In the U.S., Congress is expected to vote on the tax reform bill and how the vote goes and noise from the House of Representatives will be key to the progress of the bill. Any negative news will again be a negative for riskier assets.

UK (FTSE100)

Macroeconomic Data for the week ahead (Negative)

Monday

  • N/A

Tuesday

  • UK CPI m/m (Oct)
  • UK CPI y/y (Oct)
  • UK PPI Input m/m (Oct)

Wednesday

  • UK Average Earnings Index + Bonus (Sep)
  • UK Claimant Count Change (Oct)
  • UK Unemployment Rate (Sep)

Thursday

  • UK Core Retail Sales m/m (Oct)
  • UK Core Retail Sales y/y (Oct)
  • UK Retail Sales y/y (Oct)
  • UK Retail Sales m/m (Oct)
  • Friday
    • N/A

The FTSE100 slipped 1.68% through the week to hit a 6-week low last week, with a 0.91% gain the Pound certainly not helping the cause.

Economic data through the week was on the lighter side ahead of Friday's production and trade figures, leaving the markets with little to do but consider where the index has come from and where it is heading over the short to medium-term.

Such an opportunity tends to be negative, especially with the uncertainty of Brexit looming large over the UK and certainly more sensitive to the direction in the Pound.

Following Friday's manufacturing production and trade figures, which were all positive for the UK, the Pound clawed its way back to $1.32 levels for the first time since the start of the month, contributing to Friday's 0.68% decline, though the damage had already been done.

Adding to the positive sentiment towards the UK economy was the NIESR GDP estimate for 3-months to November, which forecasted 0.5% growth, accelerating from the previous month's 0.4%.

The negative for the markets was disappointing retail sales and house price figures released earlier in the week. The UK's BRC Retail Sales Monitor fell by 1% in October, falling well short of a forecasted 0.9% increase, leaving the retail sector floundering. It's going to be a tough time for the sector, with the pickup in interest rates, 3% inflation and soft wage growth weighing on consumer spending.

Next PLC (NXT) ended the week down 2.1%, with any upside from Marks & Spencer (MKS) on earnings lost by the end of the week, the stock down 2.8% for the week. If the doom and gloom is to materialize, things are only going to get tougher for the sector and holding on in hope of a rebound may be in vain.

Brexit remains a key consideration, though with Britain leaving the EU on 29 th March 2019, there's still some time before the markets need to begin searching for the panic button. See Geo-political risk section for more info.

Outside of the data, Friday's drop in oil prices pulled BP ( BP ) and Royal Dutch Shell (RDS) into the red, the pair having made solid gains through the early part of the week. Should tensions continue to rise, we would expect oil to find support over concerns of supply disruption from the region, which should be positive for the pair.

Trump's tax reform bill woes provided unnecessary support for the Pound through the second half of the week, whilst trade data out of China and Trump's visit were both considered positive.

The week ahead

  • Stats for the week ahead are of particular importance and could have a material influence on market sentiment towards monetary policy by the end of the week.
  • Inflation is expected to continue to sit at 3%, with wholesale input prices forecasted to have risen by 1.3% in October. Any uptick in inflationary pressure could see the BoE have to take more aggressive action, though this will be dependent upon the rest of the data. UK average earnings and claimant count numbers on Wednesday and retail sales figures on Thursday will need to be upbeat for there to be any chance of another near-term move.
  • Such a shift in sentiment would certainly see the Pound begin to make a move to $1.35 levels, which will be a negative for the FTSE100 and the multinationals in particular.
  • Concerns over Theresa May's position at the helm of the Tory Party will be another factor to consider through the week as Brexit negotiations resumed last Thursday.

Outside of the UK, industrial production figures out of China on Tuesday will influence market risk appetite, as will an anticipated Senate vote on the tax reform bill.

  • The House of Representatives is expected to be the stumbling block, so any surprise resistance in Congress will weigh heavily on the Trump rally that has inspired the markets beyond U.S borders.
  • The good news for the Pound will be the fact that Trump's protectionist attitudes are unlikely to hurt the UK, with the U.S president likely to take a far more lenient approach to trade talks than with the likes of Germany.
  • Trump's criticism of the WTO during the APEC CEO Summit hit the news over the weekend, with the U.S president continuing to complain about unfair trade agreements for the U.S

U.S Equities

Macroeconomic Data for the week ahead (Positive impact)

Monday

  • N/A

Tuesday

  • S Core PPI m/m (Oct
  • S PPI m/m (Oct)

Wednesday

  • S Core CPI m/m (Oct)
  • S Core CPI y/y (Oct)
  • S Core Retail Sales m/m (Oct)
  • S CPI m/m (Oct)
  • NY Empire State Manufacturing Index (Nov)
  • S Retail Sales m/m (Oct)
  • S Business Inventories m/m (Sep)

Thursday

  • S Initial Jobless Claims
  • S Export Price Index m/m (Oct)
  • S Import Price Index m/m (Oct)
  • Philly FED Manufacturing Index (Nov)
  • Philly FED Employment Index (Nov)
  • S Industrial Production m/m (Oct)

Friday

  • S Building Permits (Oct)
  • S Building Permits m/m (Oct)
  • S Housing Starts m/m (Oct)
  • S Housing Starts (Oct)

U.S equities joined the rest in the red last week, with the Dow and S&P500 falling 0.5% and 0.21% respectively. The NASDAQ joined the pair in the red for the week, falling 0.2%, despite managing to avoid another decline on Friday.

That's an end to the Dow's 8-week rally and the person laying claim to this year's record-breaking runs is the person contributing to the decline. Concerns over a possible delay in tax reforms until 2019 weighed heavily on the markets. The balance of power sits in the House of Representatives and, while the House is under the Republicans, there is a difference of opinion on key elements of the reform bill that could see a lengthy backward and forwards between Congress and the House. The impact of the proposed tax reforms on U.S debt have also been doing the rounds, so some tweaking is more than likely.

We will expect the markets to continue to be dictated by progress on the tax reforms and, with the U.S President back, we will expect plenty of noise on the subject.

A pickup in oil prices through the week failed to provide support and neither did some relatively upbeat earnings. Based on FactSet numbers, 73% of companies listed on the S&P500 have had better than forecasted earnings, with the tech sector being the leader in the pack.

On the data front, economic data out of the U.S was particularly light, with stats limited to September's JOLTs job openings, the weekly jobless claims figures, and November's prelim Michigan Consumer Sentiment and Expectations figures. The data was largely overshadowed by tax reform noise and, while consumer sentiment eased according to the November numbers, an upbeat economy, a tightening labor market and the prospect of tax reforms will continue to support consumer sentiment.

It was always going to be a choppy week with the lack of stats and tax reforms taking center stage and we are likely to see more of the same next week ahead of Thanksgiving. Pressure will be on to get the bill passed through and the rush could be its downfall.

Outside of the U.S, Trump's visit to Asia saw the U.S President talking down the WTO, with the talk of unfair trade agreements coming up once more in the president's speeches. Trump also said that the U.S would not be entering into any multilateral agreements such as the Trans-Pacific Pact and would instead look for bilateral agreements with countries who don't try to take advantage of the U.S.

The comments seemed to go against the tone taken with China, so the markets will have to wait and see whether the U.S administration will begin talking up the possibility of punitive tariffs once more.

The week ahead

  • With all the big names have released their earnings results, the focus will remain on tax reforms through the week. Expectations are for Congress to vote on the bill to the House of Representatives before Thanksgiving.
  • Macroeconomic data out of the U.S will also be a factor to consider, with the economic calendar on the busier side for the week ahead.
  • Inflation figures due out on Tuesday could lead to a shift in sentiment towards December's rate hike and the rate path projection for next year, which will be a consideration.
  • The markets need some impetus to keep the rally going and tax reforms had been expected to be the post-earnings driver. Such a void could test market appetite at such levels and lead to a correction in the more inflated sectors.

HK (Hang Seng Index) / China (CSI 300) / ASX200

Macroeconomic Data for the week ahead

  • Monday
    • N/A
  • Tuesday
    • Australia NAB Business Confidence (Oct)
    • China Fixed Asset Investment y/y (Oct)
    • China Industrial Production y/y (Oct)

Wednesday

  • Australia Westpac Consumer Sentiment (Nov )
  • Australia Wage Price Index q/q (Q3)

Thursday

  • S Initial Jobless Claims
  • Australia Employment Change (Oct)
  • Australia Full Employment Change (Oct)
  • Australia Unemployment Rate (Oct)
  • HK Unemployment Rate (Oct)

Friday

  • N/A

Asian equities continued to move northwards last week, with the CSI300 surging 2.99% and the Hang Seng and ASX200 gaining 1.81% and 1.17% respectively.

The money's in Asia and while U.S equities hover close to record highs, the Asian markets are at pre-GFC levels, with some seeing more room to run for the majors.

Following calls earlier in the week of the Nikkei likely to hit 30,000 levels in the next few years, a softer Dollar weighed on the index, with the Nikkei gaining just 0.63%. That was still better than the moves in Europe and across the Pond.

For the ASX200, the good news in the week was relatively positive trade data out of China, with China imports rising by 17.2% in October, together with a relatively upbeat RBA Statement as the RBA held rates unchanged this month.

There were no material stats to speak of, with the week ending with the release of the RBA's quarterly monetary policy statement. The monetary policy statement was less hawkish than the RBA has been in recent statements, revising down growth projections for this year, 2018 and 2019. With U.S Dollar weakness contributing and the negative sentiment towards tax reforms lingering through the Asian session on Friday, the upside in the ASX200 was limited. By the close, the index held on to 6,000 levels, with Thursday's close has been the highest since 2007.

It was a particularly strong week for the CSI300 and Hang Seng. Trump's meeting with China's premier will have certainly provided support. Concerns over punitive trade tariffs have certainly abated and the need for China to manage North Korea suggests that Trump will need to take a softer hand with China on trade and that's good news for both the Hang Seng and Chinese equities.

Data through the week was on the positive side, with trade data continuing to point to growth, whilst Hong Kong's economy grew by 3.6% in the 3 rd quarter, coming in ahead of forecasts.

The bad news is the release of numbers out of China, which showed an 8% decline in fiscal spending in October year-on-year, compared with a 1.7% increase in September. The figures suggest a possible slowdown in the economy and when considering the 6.9% increase in exports, there may be some jitters over the numbers.

For the Hang Seng, the year-to-date gains have been impressive and one does wonder how much further the index can run. Soft numbers out of China will certainly test investor spirit, the index susceptible to significant volatility.

For the CSI300 it's a different story and focus will remain on the inclusion of Chinese equities into the MSCI Emerging Markets Index, though between now and next year, data will certainly influence with investors being primarily retail at present.

The week ahead

  • For the week ahead there are some key stats for the markets to consider, including China's fixed asset investment and industrial production figures due out on Tuesday.
  • The figures will likely impact all of the majors in Asia, as China continues to be an integral part of the global economy, with regional economies becoming ever more dependent upon China.
  • For the ASX200, business and consumer confidence figures together with employment numbers will be key drivers. The big four banks have the largest weighting on the index and any negative stats will add pressure on the 4.
  • The RBA has revised downwards its growth forecasts and the markets won't want to see more weakness.
  • Other factors that will also influence will be news on tax reforms from the U.S, possible conflict in the Middle East and the fall in China's fiscal spending in October.

This article was originally posted on FX Empire

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Currencies , Commodities , Oil , World Markets
Referenced Symbols: DE , BP , DAX


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