Weekly Market Insight - October 30th 2017
The economic calendar is heavily laden with potentially market-moving data points and events during the coming week.
From an economic standpoint, a key theme will be the next steps in monetary policy with the Federal Reserve, Bank of England and Bank of Japan all making interest announcements. The only central bank that is likely to be moving on rates this week is the Bank of England. More on that later.
The most market significant data point will hang over that market all week as it is not until Friday that the October US employment data is announced at 12:30 GMT (remember, the US will alter its clocks until next weekend).
The figure should show a vast improvement as last week the Commerce Department data showed on Friday that the U.S. economy expanded at a faster pace of 3.0% YoY than was forecast in Q3 (2.6% was expected), following a 3.1% gain in Q2.
This print represented the best back-to-back quarters since 2014 and was a sure indication of resilient demand from consumers and businesses even with the disruption from hurricanes Harvey and Irma. The impact of Q3 will be felt in the first month of Q4.
Therefore, look to see payrolls soar to 315,000 from -33,000 in September with the jobless rate holding at 4.2%.
I appreciate it is the data points that create the rapid trading opportunities, however, for a slow pot-boiler intermixed with sudden volatile burst of energy keep paying attention to the impact on Spanish yields, spreads, CDS and the IBEX 35 all driven by the ongoing fallout from Catalonia’s decision to declare independence from the Kingdom of Spain.
Take the 5-Year CDS as a proxy for Spanish risk. This has risen from +63.54 bps on September 29 to 71.25 last Friday. In contrast, the CDS for Italy has contracted from +138.24 bps to +130.27 bps.
However, there is a wider risk for the Euro, for just as the Euro plunged today as the European Central Bank (ECB) only pulled the plug on its money printing programme the Euro may face more troubles in the months ahead as several other regions of Europe may also bid for independence.
Spain: Basque region and Galicia
Italy: Lombardy and Veneto in the north and Sicily in the south
Imagine the damage on the Euro if Catalonia really does catalyze a new series of splits within the EU and Eurozone.
Looking at the ECB, one would have imagined a step toward tightening monetary policy would support the Euro. Draghi cut the value of ECB bond purchases from 60 Billion to 30 Billion a month, starting from January and ending in September next year.
The Euro slid against the U.S. Dollar on the announcement down 0.9% to 1.1710 in late afternoon trading. The fall by the end of the day was 1.38% as the Dollar was supported by strong data out of the US.
The support for the Dollar may gather pace after a short-term and limited bounce for the Euro as on Tuesday the U.S. Conference Board will report Consumer Confidence with 121.0 expected up from 119.8 in September.
Look for the tone of the Federal Reserve statement on Wednesday as the tenor will set the mood music for the timing of the next rate hike from 1.25%; 25bps in December still remains the most likely time and degree of change.
Thursday will be all about the Bank of England with a growing expectation that the Monetary Policy Committee will decide to increase the Base Rate by 25bps to 0.50% even with the Brexit scenario far from clear. The impact of inflation at 3.0% in the year to September 2017 and the strain on households who are seeing the real wages go backward being key determinants in the policy decision.
So, there is plenty to keep an eye on from both an economic and political perspective.
Have a great week!
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