Weekly market preview – 7 October 2013................................... An unpredictable week ahead where the markets are driven in a large part by the US economy which continues to lack a resolution to the ongoing government shutdown. The postponement of the data from the Department of Labour last week means that a resolution of this shutdown could provide a raft of data points or else continue the dearth of economic releases. In the UK, the major point of note is the MPC monetary policy decision on Thursday. Meanwhile in the eurozone a quiet week is dominated by German data along with two speeches from Mario Draghi. In Asia, a similarly quiet week means we are mainly looking towards the release of BoJ minutes in Japan for any indication of possible further monetary stimulus going forward. While in Australia the release of unemployment data on Friday makes for an interesting week for the region. US Last week marked the primary opportunity for markets to gauge how likely we are to see a October taper from the Fed, given the release of crucial jobs data. However, the inability of the US congress to reach a satisfactory compromise over the budget has meant that we are currently without a spending bill. As a result, the employees at the Department of Labour must take compulsory leave, meaning that until we have a resolution to this issue we will not receive any government calculated economic releases. The most notable of these were the nonfarm payroll and unemployment rate figures, which will be provided once the shutdown is over. This essentially means that the longer this standoff remains unresolved, the less likely we are to get any taper in October. Should the shutdown be resolved we could be in for a busy week while the market catch up. Otherwise, of the events that will certainly go ahead, the unemployment claims, FOMC minutes and UoM consumer sentiment figures will take the focus. The lack of any DoL jobs data last week means that the focus upon the weekly unemployment claims figure will intensify as investors look for hints as to the tapering decision at the FOMC meeting later this month. The expectation is that for any taper to be feasible, we would have to see a significant deterioration of the unemployment levels, however the expectation is that we will only see a reduction by 1,000 from 308k to 307k. This would likely be insufficient to taper, especially without the headline figures being released. Thus I do not believe that this figure will necessarily be able to convince many that we will see a taper, but certainly has the ability to confirm a non taper. On Wednesday, the FOMC minutes are released from their last meeting, and with it we will gain a greater understanding of why the committee decided to not taper in September. Of course, the tone of the minutes will be highly notable and will give us a greater insight into what conditions are now deemed as required. Given the impact of the current shutdown, I believe the sentiment is likely to swing further against a taper rather than towards it. Finally, the University of Michigan consumer sentiment figure is due to be released on Friday. This is the preliminary release and thus has the propensity to move the markets more than the later revisions. Given the lack of data out recently, the markets will likely attribute a greater importance to this and thus we could see some volatility off the back of this release. The market expectations are for a marginal fall to 77.2 from 77.5. However, given the increased worries regarding the debt ceiling and budget throughout September, I believe this could fall further than that. UK A moderately quiet week in the UK, where the two events of note come in the form of the manufacturing production figure along with the monetary policy decision from the BoE. The MPC will decide on Thursday as to whether the current monetary policy will be altered from the current 0.50% interest rate and £375 asset purchase facility. Given the forward guidance provided by Mark Carney, there is no expectation for any change in either direction. However, should the accompanying statement provide anything new, this event has the possibility to really move the markets. The second event of note in the UK is the manufacturing production figure, released on Wednesday. Given the disappointing manufacturing PMI figure last Tuesday, the markets will be looking to this figure for evidence that the industry is still going on strong. Market expectations point towards a marginal rise from 0.2% to 0.3%. On the whole, we only get a notable market response should the figure come in well above or below estimates and thus anything around this level would likely bring an unremarkable response. However, should this come in sharply away from estimates, there is a possibility of volatility. Eurozone A quiet week in the eurozone is dominated by the release of a raft of German data along with two speeches from ECB president Mario Draghi. The German economy is the main driver of growth and output for the region, which makes any change in sentiment very important. Therefore the release of the German trade balance, factory orders and industrial production figures in the first half of the week will therefore be a key barometer of how the economy is progressing. The expectation is that we will see a notable improvement on all fronts, where the trade balance moves further into surplus and both industrial production production and factory orders move back into growth. On the whole, these figures are unlikely to have a substantial impact individually unless we get a significantly wide figure. However, we are looking for an overall indicator from all three of these releases as to how the German economy is faring going forward. On Wednesday and Thursday, we will hear from ECB president Mario Draghi where markets will be looking for further comments following his appearance at the ECB press conference last week. Much of the expectations and emphasis is currently geared towards the possible use of LTRO’s by the ECB, which was not ruled out. Any further comments to further elaborate upon that standpoint would likely move markets and thus look out for any discussion of the topic. Asia & Oceania A quiet week in Asia, where the only events of note come out of the BoJ in Japan. On Wednesday the minutes from last week are released, while on Thursday we will hear from BoJ Governor Kuroda in Washington. Essentially we are looking for the same from both events which is any indication that the BoJ has some form of willingness to increase their current rate of asset purchases or lower the interest rate. The application of a heightened sales tax is also key to bringing down debt, yet could be detrimental to the current recovery owing to lowered demand. Thus it is these two points which should be followed within both the minutes and Kuroda’s speech. In Australia, the focus will be on Thursday, when the jobs data is released in a period where there seems to be signs of a gradual improvement in the region. The employment change figure is the most volatile and gives a good insight into the direction the employment situation is moving. Market expectations point towards a reversal of the disappointing August figure of -10.8, instead looking towards a rise 15.2k. On the other hand, the unemployment rate is the opposite, giving a less dynamic measure. That being said, this figure tends to grab more headlines at any shift the previous months figure. Expectations point towards the 7.8% figure remaining steady which seems highly possible given the mixed employment change data over past months. Should we see a strong showing from the jobs report, this could provide yet another boost at a time when things are starting to look a little more rosey in the garden for the Australian economy. KAPIL Bad Boy
Posted on: Sat, 05 Oct 2013 09:55:55 +0000
Trending Topics
Recently Viewed Topics
© 2015