Weekly Market Preview

A big week ahead in the markets, where a divergent monetary policy environment means that we will be able to monitor whether the underlying economic trends are set to continue. In the US, the release of the GDP figure on Tuesday features within a week where a raft of mid-tier figures are released, but with few real major data points. A similar story in the UK, where the second Q3 GDP estimate represents one of only a few figures to watch out for. Meanwhile in the eurozone, the release of the latest CPI figure will be the main event of the week, where a shift could determine the near term monetary policy at the ECB.

In Asia, the focus will be upon Japan following the recent widening of QE at the BoJ. Given that those BoJ decisions have been driven largely by inflation worries, the release of CPI data on Thursday will be key to watch out for.

US

The US markets have a number of interesting data points to look forward to this week, with the release of a handful of mid-tier figures on the cards. The biggest figure being released has to be the GDP number, which is due out on Tuesday. The highest level summary of economic growth is the most important barometer of where the US economy is right now and thus everyone within the markets will be watching out for any movement. The release is a second revision, meaning that for the most part, there is likely to be less volatility than for the initial number. However, the forecasts point towards a lowered figure of 3.3% from 3.5% announced last month. Therefore there is some movement expected and as such we could see volatile price action to reflect this.

Also on Tuesday, the CB consumer confidence figure is a great barometer of where the US population stands and what future spending is going to look like. A confident consumer means greater retail sales and ultimately lower unemployment. In an economy where 65-70% of growth comes from consumer spending, confidence is critical for a strong Q4. Estimates point towards a strong rise to 96.0 from 94.5, which would be the best number since late 2007. Given the upward trajectory of 2014, it would not necessarily surprise me to see a rise, especially off a big jump last month. With oil prices falling, unemployment rate at a 6 year low and interest rates likely to remain low for a decent amount of time, US consumers must be feeling pretty good right now.

The final number of note is the core PCE price index, which is the Feds preferred measure of inflation. Given the global disinflationary trend, there have been expectations that we could see it feed into monetary policy decision-making and push interest rate hikes further into the future. For the most part, major disinflation has not really come to fruition. However, be aware of this figure on Wednesday as any movement towards the downside could spark more fears of disinflation coming to the US. Expectations point towards a month on month rise from 0.1% to 0.2%.

UK

A very quiet week in the UK, where the only major event is likely to come in the form of the second estimate of Q3 GDP, due on Wednesday. For the most part, expectations are pointing towards the UK starting to feel the effects of the eurozone slowdown and Russian sanctions. This could come to the fore on Wednesday, when the quarter on quarter figure is expected to fall to 0.7% from 0.9% in the first estimate. On an annual basis, the 3% figure is expected to remain steady, yet with a moderate slowdown expected towards the back end of the year I would not be surprised to see it ease back somewhat too.

Eurozone

European markets are set for a busy week as a whole host of economic data is due to out. After Mario Draghi’s speech on Friday sent the Euro tumbling lower there will be a lot of focus on the data due out this week. The speech on Friday morning was the most dovish we have heard Mr Draghi for a while and for once he has hinted at the one thing we have all been waiting for a long time. It may finally be that we see a full round of QE out of the ECB as they try to drag the Eurozone economy out of the mire and push both growth and inflation higher. This week will be a telling week as numbers out of Germany and the eurozone will tell us just how well placed the eurozone economy is to deal with a full round of QE. The issue being that without a strong German there is not a strong eurozone and with this in mind we will be looking closely at the IFO sentiment readings especially after last week’s strong ZEW survey.

The German Ifo business climate number comes at a time when everyone has been scrutinizing all the German numbers closely due to the fact that it is clearly failing to continue the role of dragging the region out of the this post 2008 downturn. The use of surveys such as this can be absolutely key to determining where hard sales and output data is heading and thus it will be crucial to watch out for where this number is heading. The estimates point towards a marginal rise to 103.4 from 103.2 in the business climate number. Should occur, it would be a boost given recent weaknesses, however I am expecting a weaker number given very unflattering manufacturing data recently released which show a sector teetering on the brink of contraction.

The biggest event of the week is likely to be the eurozone CPI figure, which is released on Friday. This has been the core driver behind the ongoing implementation of loose monetary policy from the ECB and any further move lower for this figure would put even more pressure on Mario Draghi. His recent statement shows that there is a desperate need for the inflation rate to rise and should that not occur, it is going to greatly increase the likeliness of a QE programme down the line. Estimates point towards yet another fall from 0.4% to 0.3%, which would cause a real stir within the markets should it happen. Thus keep an eye on this figure as a potential cause of market volatility.

Asia & Oceania

There’s going to be a lot of focus on Japan again this week, with Bank of Japan Governor Haruhiko Kuroda speaking on Monday and a range of data being released on Thursday. Last month, the BoJ surprised markets by increasing its bond purchases to ¥80 trillion yen per year, up from ¥50 trillion previously. Since then, the data has explained why the BoJ took the actions it did, but with the central bank and government clearly concerned about the path the economy is on, all eyes are going to be on the figures to see if it can get back on track. The next batch of data we’ll get comes on Thursday, with inflation, housing, spending and industrial production figures being released.

Ordinarily, the inflation data may be the most keenly watched, but with the BoJ having recently expanded its quantitative easing program it doesn’t really matter too much. Unless inflation falls dramatically, which it isn’t expected to, people are likely to look past it and focus more on inflation expectations in a few months’ time. The other notable release is retail sales, with the economy being 60% driven by the consumer. The fall in consumer spending has really contributed to the recession that it now finds itself in but given that this is driven by the sales tax hike, I expect it to pick up as we approach the end of the year.

Last week was a big week for China, with a number of significant pieces of economic data being released, followed by a surprise rate cut from the People’s Bank of China. This week, there is no data coming from China, leaving only Australia as the other major country with numbers being released. Even then, there’s very little to come from Australia, with construction work and private capital expenditure numbers scheduled and in all reality, I’m not sure how much impact this will have on its relative assets, let alone the broader markets. All things considered, it’s looking like a rather quiet week, which is not surprising coming off what has been a very busy one.