Monday: CN Trade Balance, JN Bank Holiday, EU Industrial Production, US hold formal free trade talks with EU/JN, Citi earnings
Tuesday: JN Prelim Machine Tool Orders, CN Foreign Direct Investment, M2 Money Supply, New Loans, FR Final CPI, Govt Budget Balance, EU Trade Balance, UK PM May Meaningful Vote in Parliament, US PPI, Empire State Manufacturing, IBD/TIPP Economic Optimism, Weekly API Crude Inventories, NZ GDT Price Index, ECB's Draghi, Fed's George speak
Wednesday: JN PPI, Core Machine Orders, Tertiary Industry Activity, GE Final CPI, UK CPI/RPI/PPI, Mortgage Approvals, GE 30-yr Govt Bond Auction, US Retail Sales, Import Price Index, DoE Weekly Crude Oil Inventories, NAHB Housing Market Index, Fed's Beige Book, TIC Long-Term Purchases, BoE's Carney speaks
Thursday: UK RICS House Price Balance, BoE Credit Conditions Survey, IT Trade Balance, SP 10-yr Govt Bond Auction, EU Final CPI, US Philly Fed Manufacturing Index, Weekly Jobless Claims, CA Non-Farm Employment Change, BoJ Kuroda, Fed's Quarles speak, G20 Meeting, Netflix earnings
Friday: JN National Core CPI, EU Current Account, UK Retail Sales, US Capacity Utilisation, Industrial Production, Prelim University of Michigan Sentiment, CA CPI, Fed's Williams speaks, G20 Meeting
*On-going US Government Shutdown could delay the release of some data
A busy week ahead with Theresa May's Brexit vote on Tuesday, an on-going US government shutdown, further evidence of a slowdown in China and US earnings season kicking off with Citi reporting later today.
Starting with the biggest domestic issue - Brexit. The latest press reports the weekend have lent further support to the belief that Theresa May's current Brexit plan will fail in parliament tomorrow. This opens the prospect on what comes next of which could have wide ranging consequences for GBP.
Bloomberg conducted a survey last week of 11 major financial institutions as to ascertain their % probability of each outcome and its associated move in cable.
"The PM's deal failing in parliament tomorrow is not on its own a negative for the currency. What may well be the defining factor is the margin of defeat"
A defeat exceeding 60 lawmakers would probably mean the agreement is close to death and negotiations are in uncharted waters, according to several EU officials cited by Bloomberg this morning.
Our base case is that May fails but the shortfall is contained enough to just repeat the cycle and come back with an amended deal in the weeks to come. The tail risk to this is a landslide defeat (triple digit) which then increases the risks of a general election, heightening political uncertainty, and likely weighing heavily on GBP short-term.
When approaching such an uncertain event our approach is to always prepare for all scenarios, even those which carry a low probability so that should they materialise then we simple inaction a predefined plan. With that in mind here are some technical levels to be mindful of.
Over the Atlantic, politics is an equally dominant theme this week as the US government shutdown moves into unprecedented territory. So far, the market has been willing to overlook the situation but with the first pay cheques not being processed on Friday resentment is likely to intensify and as too the impact of the impasse on both the operational aspects of government and its associated impact on the economy which may well started to be priced in should the standoff continue until the end of the week.
Not only this, there are other uncertainties that may well weigh on global sentiment, these being further evidence of the slowdown in China (weak trade data over the weekend) and the risk of a lacklustre start to earnings season (Citi today, first of big US banks).
With the above factors in play we have a downside bias for US equities this week. Supporting this view is the belief that the recent move higher, supported by the dovish turn from the Fed, has now be largely priced in. A key area we are watching in the S&P 500 future is the bottom of the trend channel in play from 2018 with the 50DMA seen just above.
Given the macro impact of a global slowdown, further magnified by the government shutdown, the fundamentals for oil are equally bearish. The near $25 gain seen since the December 2018 low seems a more than adequate move for the supply change made since the OPEC+ cut came to fruition but it's the demand side of the equation that is most worrying for crude at present.
Overnight, the latest trade data from China showed their position worsened since November as exports and imports weakened, supporting the idea that both the Chinese government and central bank will need to be proactive in supporting the economy. Adding to the growing concern is that the latest readings come as the recent front-loading to get ahead of the expected tariffs appears to be fading, highlighting the significant task ahead for the Chinese authorities.
Finally, US earnings season adds another dimension to markets this week with the big banks kicking off the season. As is always the case for the first of the sector to report, Citi today should provide a good litmus test for the big banks and attention will be paid to the performance of Netflix on Thursday night where subscriber numbers will be scrutinised by the market.
If you missed the briefing this morning you can recap the session by clicking HERE.
Have a great week.