Weekly Market Preview


A busy week ahead in the markets, where the US and eurozone are expected to provide the most interest from an economic standpoint. The US FOMC announcement will no doubt be one of if not the main event of the week, when markets look out for a potential end to asset purchases. In the eurozone, the latest CPI figure is certain to bring the problem of disinflation back to the table following a year long downtrend. In Asia, the Japanese economy will be the main focus, with the release of the latest monetary policy decision from the BoJ.

US

A major week ahead in the US, where the FOMC meeting is going to dominate the week. Alongside this, the release of the US GDP, consumer confidence and Core PCE figures will mean that we are due to see a busy week ahead.

The main event takes place on Wednesday, when the latest FOMC meeting comes to a conclusion, with many expecting to see QE3 finally come to an end. The question over whether we would see asset purchases end in October has been somewhat non-existence in the past 6 months, with markets believing Janet Yellen when she disclosed that this month would mark the end of QE. However, with disinflationary pressures spreading from the eurozone to China, the UK and US, we have seen recent calls from Fed members to delay the end of asset purchases. I do not expect this to happen, yet should we see the FOMC delay this final nail in the coffin, it would shock markets significantly and push back many people’s mental timelines for interest rate hikes. Thus be aware of whether asset purchases end this month, but also be on the ball for the FOMC statement where everyone will be on the lookout for any signs with regards to whether the interest rate hike timeline is going to shift in the fact of falling inflation.

On Tuesday, the CB consumer confidence figure is due out, with many expecting to see a resumption of the uptrend that has been evident throughout the majority of 2014. The US economy is driven to a large extent by domestic consumption, which dominates growth levels given that around 70% of GDP is accounted for by domestic consumer activity. This highlights the importance of the consumer base within the US and as such, confidence is surely a precursor to strong activity from consumers. Market estimates put this month’s figure around 87.7, following last month’s number of 86.0.

On Thursday, the release of the US GDP figure is sure to draw attention from the market as dollar strength and resurgent stock markets highlight an economy which many believe will be the strongest developed economy in 2015. The annualised GDP figure is set to be the main attraction, where the previous number of 4.6% is widely expected to fall back towards the 3.1% region. Ultimately, the US appears to be best positioned to move forward and this is set to be tested once more with Thursday’s figure.

Finally, the core PCE price index is going to be a major release of note on Friday, with many expecting to see a major pullback from the 2% levels seen last month. The core PCE figure is widely known as the Fed’s preferred measure of inflation and given the clear downward trajectory of the CPI reading in recent months we are expecting to see the same start to show here. There have already been calls from Fed members Bullard and Williams to either delay the end of QE or even to introduce QE4 should disinflation persist. Thus should we see a major move lower, it could be seen as likely to induce a more dovish outlook for the Fed.

Eurozone

Another major week ahead in the eurozone, where the main event is likely to be the CPI figure, due on Friday. However, before that there is going to be a focus upon the German economy, with the release of retail sales and a business climate survey due on Monday.

The main event of the week is going to be Friday’s CPI flash estimate reading, where the pressure could be ratcheted up yet again upon Mario Draghi should disinflation persist in the eurozone. This downward trajectory of inflation within the eurozone has lasted three years now, with the Q4 2011 reading of 3% deteriorating to the current 0.3% seen to in September 2014. The markets are expecting this figure to alleviate the pressure somewhat, with estimates of 0.4%. Either way, a move in this figure could be major for the markets, with any move lower likely to spark fresh calls for further actions from the ECB. Also be aware of the core CPI figure, which strips out volatile factors such as energy, alcohol, tobacco and food. In particular, energy prices have been moving lower recently, with oil tanking in recent months so Draghi is likely to look past that to some extent and will be as likely to watch the core figure as the headline one.

The rest of the focus this week is going to be directed towards the German economy, where the business climate survey (Monday) and retail sales (Friday) numbers are due out. The Ifo business climate survey is going to be key given the downturn that has been evident in recent months. The deterioration in sales, employment, GDP growth and more means that business leaders are likely to be finely attuned to exactly how bad it is in the economy at the moment. Given that this is a survey, it means that we should be able to provide a up to date idea of exactly where the economy currently is and thus this is an important predictive release. Market estimates point towards a fall from 104.7 to 104.1 which would be a continuation of the trend seen in the past 6 months and thus is likely.

On Friday, the German retail sales provides a good indication of demand within the German economy, with the consumer making up a considerable amount of demand for services and alike. The ability of the German economy to move out of this current downturn is going to be largely down to domestic consumption, given the weakness within the eurozone and imposition of sanctions. Thus I will be watching this figure closely for signs of strength or weakness in the recovery.

Asia & Oceania

A mixed week ahead, where an almost non existent Chinese and Australian schedule means that the focus will be solely upon Japan to lead the way. The event to be watching out for this week is going to be the BoJ monetary policy decision out of Japan, where Kuroda is largely expected to keep asset purchases and interest rates constant. However, with inflation waning and the government debt ballooning, there is a likeliness that at some point, the BoJ could be interested in moving the rate of asset purchases higher. As such, be on the lookout for any more dovish tones from the BoJ which I believe will become increasingly regular going forward.



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